Modern legacy planning strategies for preserving wealth across generations
The great wealth transfer is underway. In the next decade, the HNWI families and others in the Middle East are expected to pass down AED3.67trn (£820m, $1trn, €980m) to the next generation. Legacy planning can be a challenging task, especially because of the emotional weight it carries. Additionally, many families are unaware of the difficulties that their heirs may face when it is time for them to take over the family estates. Cross-border businesses, international laws, and tax implications require professional advice. 

The UAE’s international environment, lack of infrastructure debt, and rapidly growing economy make it an attractive market for wealth managers. However, there are some challenges the region faces when handing over assets to the next generation. According to Lombard Odier’s survey, 87% of HNWI in the Middle East indicated that their family businesses are ready for an “efficient intergenerational wealth transfer”, but just 24% have created an estate plan for when the younger generation takes over. The region’s wealth management and advisory providers mostly offer a transaction-based, siloed approach to their clients’ queries, but with the foreseeable amount of wealth reallocation in the region set to run into the trillions, a more proactive legacy planning strategy is needed.  

In today’s blog, we investigate the unique wealth planning landscape of the UAE and explore how financial advisors can leverage technology to help the older generation achieve and visualise their legacy planning goals amidst this monumental wealth transfer.

The great wealth transfer in the Middle East
Some challenges that wealth transfer presents are universal – many clients refuse to discuss legacy planning with their financial advisors. One of the main reasons is, of course, the emotional nature of the topic. “… Typically, when wealth is created through the entrepreneurial efforts of the older generation, these companies become an integral part of who they are. So, to initiate a conversation of succession, it is sometimes a very challenging moment for an entrepreneur, as it is almost like giving up who they are,” says Nuno Matos, CEO of Wealth and Personal Banking at HSBC. 

Second, according to Lombard Odier’s survey, 67% of respondents believed having a Sharia-compliant succession plan was important, with older business owners (74%) placing slightly more importance on it than younger clients (62%). Sean Kelleher, chief executive of Mondial Dubai, said, “Shariah Law is Sharia Law, and if families are intent on complying, they do not need too much advice. Why pay for something which is already enshrined in law and which you accept?” 

Third, many clients in the UAE are unaware of the scale of this process’s regulatory and tax implications. “Families with assets in multiple jurisdictions fail to appreciate that they could be exposed to taxes and the impact it would have in the event of their demise, not only on their family but the businesses they head,” says Hannah Greenwood, managing director of Finsbury Associates. 

Fourth, according to Financial Planning, the reluctance to discuss the topic may stem from the complexity of family relationships. For example, some clients may fear that their heirs may develop a sense of entitlement and not work as hard to pursue their accomplishments, while some parents or grandparents may decide to leave more to one heir than another, which can create conflict. Some clients believe that it is inappropriate to talk about money.  

The government recognises the need for a change in mindset in the region and encourages citizens and residents to take a proactive approach to planning the financial future of their families. In August 2022, the Dubai International Financial Centre (DIFC) launched a global family business and private wealth centre to help individuals and families in the region and worldwide with legacy and succession planning. With an increasing number of expatriates, golden visa holders and mixed religion families, the demand for advisory services on legacy planning outside Sharia Law is expected to increase.  

Aside from client attitudes, there are a few other factors that slow down the development of legacy and succession planning services in the region. For example, The International Adviser highlights the need for international expertise and collaboration in the industry. Moreover, effective estate planning requires a collaborative environment for legal, fiduciary, banking, insurance, trustee, and realty functions, while, presently, the clients are treated in siloes, reducing the opportunity to present the client with a holistic picture of their finances.

Read the original article here.