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Grace Treston: What’s more important than family? Many of you, I’m sure, would say nothing. It’s at the heart of what so many of us do. It can drive your actions, your desire for success, your motivation to build a legacy that matters. So you would think then, that for wealthy families, the ability to provide security for the next generation would mean smooth sailing and harmony. But as we know all too well, that’s not always the case. It seems wealth, and more specifically, the transfer of wealth to the next generation, can be the source of conflict in families if it’s not handled correctly. Not only that, but families are facing even more complexity than ever before as they grow more global, more intergenerational, and more aware of the changing landscape that we find ourselves in. These topics, you’ll be glad to hear, are covered in depth by Julius Baer’s newly launched Family Barometer, now back for 2023 in collaboration with PwC Switzerland. And as we publish the report, I’m joined in studio for the Beyond Markets podcast with Scott Duncan, Wealth Planner in the International Advisory Team. Scott, thank you so much for coming in to talk to us today.

Scott Duncan: Thank you. Thanks, it’s very nice to be here.

Grace Treston: So first, could you tell me about what your role entails?

Scott Duncan: Yes, so I’m a Wealth Planner based in Geneva in Switzerland. I focus primarily on the United Kingdom market. I’ve been advising wealthy families and individuals for 20 years now, actually, and nine of those I’ve been with Julius Baer.

Grace Treston: And on this podcast, in the past, we’ve spoken a lot about the great wealth transfer that’s happening in coming years. But from your perspective, can you tell me a little about that?

Scott Duncan: The great wealth transfer refers to a huge intergenerational wealth transfer from baby boomers, so that’s people who were born in the mid 40s through to the mid sixties, and the wealth that they’ve gathered is going to be transferred to Generation X and the millennials as well. So an analogy I like to use to describe this wealth transfer is: imagine a tree on the side of a valley, and this tree represents the family wealth. And that tree has grown because it’s had the right environment to thrive. It’s been well looked after, a lot of care and attention has gone into that tree.

Now, when we think of this wealth transfer, it’s the same as thinking of moving that tree from one side of the valley to the other. And we need to think of the land on the other side of the valley. Does it have the right ecosystem to allow that tree to continue to grow and to thrive? And also we need to build a bridge between those two sides of the valley. And that bridge represents the transition from one generation to another. And a lot of thought needs to go into that bridge. Will it be a rickety rope bridge that risks breaking as the tree makes its journey from one side of the valley to the other? Or will it be something far more robust and much more secure, like the Golden Gate Bridge in San Francisco?

Grace Treston: As I was saying before, the Julius Baer Family Barometer has been launched for 2023, and it surveys those who are closest to high-net-worth families and their advisors. So when it comes to topics beyond investments, the survey found this year that family wealth structure topics are front of mind. And there’s also a global aspect that features quite prominently this year with wealthy families spread across the world. This, of course, makes things much more complex. So, Scott, in your experience, what unique considerations or complexities can arise when someone is transferring wealth internationally within families? And how can they address these challenges?

Scott Duncan: Succession laws vary from country to country, which makes cross border estates a kaleidoscope of complexity. And there’s a lot to consider here. You need to think about the location of the assets, the residence of the heirs, and what legal documents are there to govern their succession from one family member to the other family member, and are they valid? Are there any conflicts of laws? Which jurisdiction will take authority over the succession of that estate? What taxes are there to pay and by whom? And finally, I think, where is the deceased? Where did they pass away? Now, on top of that sort of cold legal complexity, you then also have the complexities of the family dynamics as well. The family dynamics and the tensions that will inevitably run high when a key figurehead of the family has passed away. And that key figurehead of the family might be the glue of the family as well. And when they pass away, there is then going to be a lot of tension, a lot of uncertainty, and that’s actually when problems can arise.

And let’s take, as an example of international complexity, Jean Philippe Smith, who is better known by his stage name of Johnny Halliday. He was the French rock and roll singer, and he passed away at age 74 in 2017, and he was a national hero in France. And when his funeral procession went through the streets of Paris, a million people came out to pay their final respects. Now, Johnny Halliday had a blended family. He had two biological children, Laura and David, and he was married to his fourth wife, Letitia, and they had two adopted children. They lived in Los Angeles. Now, shortly after Johnny Halliday’s death, it transpired that he had drafted a will under Californian law, and he wanted his wife and two adopted children to be the main heirs of his estate. However, he effectively disinherited his two biological children, and they contested his will because under French succession laws, you can’t do that. In the United States, you can. You have what we call testamentary freedom. So you can leave the assets to whoever you choose to leave those assets to. But because of his French nationality and strong connections to France, there was an argument held by his biological children that he could not disinherit them, that they had an entitled share to his estate. And unfortunately, what that means is that when he passed away, it becomes public. When there’s this contesting of an estate, it became public. It was an emotional time for that family, I’m sure.

And his biological daughter Laura wrote an open letter, which she also released to the media, an open letter to her father in which she said she was very hurt by this, by being left out. And she said, ‘You didn’t even leave me a record sleeve of Laura’. And Laura is one of the songs that he’d written and he’d dedicated to her. So that case was settled eventually, but it was a public matter, unfortunately, and a lot of emotional turmoil, I’m sure. How can families address these challenges as we become more globally mobile and internationally mobile when it comes to cross border estates – I think we have to accept that it’s a really complex area and that specialist advice is needed. But often I think there’s a lot of value in having a central coordinator. So ideally someone who not only understands exactly what the global succession objectives are, what taxes are due and by whom and where the assets are located. But I think that central coordination role can really help to ensure that the succession of the estate and the whole process is as smooth as possible. And something we see with clients who maybe have structures that are trying to achieve a certain objective with their succession plan is that they might actually invite litigation lawyers to come and critique it, to have a look, to stress test that structure as well, and see where there are potential flaws where it could be prone to attack.

Grace Treston: What are some signs then, that a family might be at risk of wealth-related conflicts and how can they proactively address them? Do you know of any tools or strategies that can minimise these kind of conflicts?

Scott Duncan: I think a lot of it will depend on the family dynamics and relationships within the family. And I think the key to avoiding conflict lies in open and transparent communication. So holding regular family meetings to discuss their estate plans and intentions openly, and by involving all the family members in those discussions about the wealth transfer, it can usually address those concerns and clarify the intentions and just make sure that everyone understands that plan. And this can usually be a little bit easier when it’s the first generation to the second generation and we will have heard a rather cliched saying of “shirt sleeves to shirt sleeves in three generations”. And that’s the idea that statistically speaking, family wealth doesn’t last for more than three generations. That can be for a number of reasons. It can be taxes, inflation, but also really importantly is family conflict as well. So family conflict can be a real erosion potential for wealth. When we enter into that third generation of a family, they’ve moved on from the original beginnings. They might not be in the same town anymore, they might be in multiple jurisdictions, they might not even know each other.

But it doesn’t always have to be the way that a family business or the family wealth will be eroded after three generations. If we take the example of Hōshi Ryokan, which is a hotel in Japan that’s been run by the same family for 1,300 years, we can learn lessons from those successful families that have continued for three generations. And one common way as we enter into that longer period, as a family gets bigger, maybe a little bit more disconnected as well, with these family meetings is to have actually family gatherings as well. So some will organise these really large family events every couple of years and they’ll invite all the descendants from the original founder. I think this allows the next generation to become a coherent group again who will know each other as individuals. And they like each other, they’ll spend time together in these family gatherings. There’ll be sort of team building exercises, they’ll make music, they’ll dance and they’ll just get to know each other. That facilitates dialogue within the family so they can talk about it. It creates the environment of having the ability to have discussions and the processes in place. We’re not all in Disney World, okay? And there will be family conflicts, but to give that the environment in which to be able to air those grievances and to have conflict resolution policies within the family.

Grace Treston: Okay, so communication seems to be one of the real key aspects to keep in mind there. And then in your experience, how can the heads of a family kick-start this conversation about passing on family wealth? Especially if it’s not really an often spoken about topic in that family?

Scott Duncan: It can be really hard. It’s an emotive subject and sitting down with someone and talking about their demise, you don’t want to be feeling like you’re coming across as a sort of a grave robber. You want to have these open discussions, but it can be difficult to approach that subject. But from a previous podcast it was mentioned that 70% of high net worth and ultra high net worth individuals don’t have a succession plan. But I can guarantee you it is on their mind, and they will be aware of the responsibility.

And going back to my analogy of how you move this tree from one side to the other, they know it’s there. What can be difficult is asking ‘Where do I start, and how do I build that bridge, and what should the bridge look like, and who should I involve in having that bridge be built?’ I think it can be that elephant in the room, but if it doesn’t get talked about, it’s not going to go away as an issue. And I think family members, if they need to have those discussions and facilitate it, they must try and work collectively together. So by asking the questions of what matters to you, how can I be part of this journey? How can we work together as a family so that at the end of the day, we all feel engaged, we all adhere to the end goal, and how can we work together to achieve those objectives?

Grace Treston: And in your experience, what are some common misconceptions or myths surrounding wealth transfers within families? And how can dispelling these misconceptions benefit high net worth individuals?

Scott Duncan: From my background in the UK, I’ve often had clients who, when you talk about their succession plan, have this notion that ‘Well, doesn’t it all just go to my spouse or my partner? Doesn’t it all just go to them?’ And the answer is no. If you don’t do something, if you don’t take action, there is not necessarily a guarantee that it is going to go to who you want it to go to. And in the UK, we have this concept of dying intestate, which is sort of the UK’s version of forced heirship. It doesn’t mean that if someone dies without a will, that it’s all going to go to the surviving spouse. It might go to children, or if you don’t have children, maybe not even a spouse, who’s it going to go to? And in the UK, ultimately, if no other surviving heirs can be found, it goes ultimately to the Crown. This misconception that it’s all going to go to my spouse – yes, it will, if you have a document in place to facilitate that. But at the same time, even if you do have a will, it’s not a guarantee that it is actually going to go that way. As we saw in the Johnny Holiday case, there’s nothing to stop people from attacking your succession plan.

Grace Treston: So, Scott, our Family Barometer 2023 also found that beyond investing, philanthropy retained its place as the fifth most discussed topic among wealthy families. So how does philanthropy and charitable giving play a role in this kind of wealth transfer? And what benefits can it bring to both the family and the community?

Scott Duncan: I think having a well-structured philanthropic purpose within the family can be really rewarding, obviously for the family and the community as well. I think the first benefit, if you like, is that it really provides a framework for their family to explore their values. What are their values and what is their mission as well. And I think philanthropy can be an opportunity for that family to find their common ground and a shared purpose. Giving together as a family can really unite across generations. Doesn’t matter about the geographic locations and life circumstances. And I think another area where we can see philanthropy as being a real benefit to families are those that might have a family business. The chances are that the descendants within a family, not all of them are going to have the skill set or the interest or motivation to be involved in that family business. But the philanthropic activities of the family can be a really useful tool of engagement for the family to engage together and to avoid feeling marginalised from the family. And we’ve seen philanthropy being used almost as an incubator as well for younger generations of the family.

So within the philanthropic umbrella, they can be given responsibility of investing funds, of budgeting, of evaluating projects, identifying worthy causes, project management and accountability as well. And these are skills that can be honed and developed within the relatively forgiving environment of the philanthropic missions of the family. And those skills can then also be transferred into the family business if the younger generation then want to move in that direction.

Grace Treston: And can you provide then some insights into the emotional aspects of wealth transfer and how families can navigate during the process?

Scott Duncan: So early on in my career, I had a meeting with an entrepreneur and he’d done really well. He’d sold the business and was now sitting on a lot of cash. He was married and had a young family. His children were very young, still going to primary school, and he knew that he had to do something. He didn’t want his children to become almost corrupted, if you like, should something happen to him and should they come into a significant sum of money at too young an early age. And he really bought into this notion that Warren Buffett has, and it’s one of my favourite quotes from him. And he says, I want my children to have enough so they can do whatever they want to do, but not so much that they can just do nothing at all.

And I think he knew that, and he was beginning his journey. We had this meeting to talk about trusts and the advantages and disadvantages. You could tell there was just something not sitting right, that he had an uncomfortable feeling. But when he was pressed on it, he said, I just don’t want to give up the control. He’d built this sum of money, he enjoyed the power it gave, he enjoyed the respect it gave him in the community as well. And the notion of giving that up, giving up that control and handing it over to a third party and always bringing in a third party into their family affairs just wasn’t really something that was sitting well with him. But I think the most important thing that he had done was that he had started on his journey. He had started to give consideration of how to transfer this wealth in a manner that he wanted it to be transferred to his family.

Grace Treston: And, Scott, can you share any cautionary tales, then, or examples of families that might have faced challenges or conflicts due to inadequate wealth planning, and what lessons can we learn from those experiences?

Scott Duncan: One of my favourite cautionary tales, which has quite an extreme outcome, is the case of a gentleman called William Jennens, who died in 1798. And Mr Jennens was, at the time of his death, thought to be the richest commoner in all of England. So he was a very wealthy man, had made the money more or less by himself. He was also known as William the Miser, and he had gone to his solicitor to draft a will, but he had forgotten his spectacles for that meeting. It was apparently read out to him, the contents of the will, and he said, well, look, I’m not going to sign it now, I want to go home and read it. And then, unfortunately, he went home and he was found dead at home. And they found the will folded up in his coat pocket and it was unsigned. So what that meant was that he didn’t have a valid will. And when I talked earlier about these rules of intestacy and back then, the rules of intestacy were even more complex. The identified heir was thought to actually be an illegitimate child and was therefore not entitled to receive an inheritance.

So this then caused a significant amount of time trying to find the right heir and also trying to protect the estate from spurious claims from people who said, ‘I’m called Jennens as well, so therefore I must be related. I’m entitled to some of this gentleman’s estate.’ Now, fast forward almost 120 years later. By 1915, there was no money left in the estate, there was nothing worth fighting over, and the duration of the case and the large amounts of money that was used to pay for legal action had effectively drained the estate of its entire funds.

Grace Treston: And finally, Scott, can you offer some wealth insights for listeners? Some practical tips or advice for those interested in starting their wealth transfer journey or improving their existing plans to ensure that family unity?

Scott Duncan: I think the key thing is to ask yourself, what do you want? What keeps you awake at night? And really, by identifying that, solutions can be found. And the planning during one’s lifetime, the succession of assets, really, it has to start somewhere. And I think the best thing is actually just to start having those conversations with the family, if that’s possible. If that’s not possible or not comfortable, then with trusted advisors, start talking about it and start sharing what the worries are what the concerns are, what the challenges are – and with many things, it’s not going to be solved overnight. No one solution is going to be a magical panacea. But I think by starting that journey and that wealth transfer, going back to the analogy, we can start looking at the bridge and how is it going to look and who’s going to help to build it. And that bridge, once it’s built, it doesn’t need to stay there either. It can be changed, it can be modified. And I think my key message is to take action. And if one succession plan is already there, then keep reviewing it and revisit it regularly.

Grace Treston: And that’s a brilliant piece of advice to end on. Thank you so much, Scott. That brings us to the end of our podcast.