Succession planning is part of the culture in many countries around the world. In Europe, the tradition of passing on wealth from generation to generation has existed for hundreds of years, and some families may only be able to trace the meandering path their family fortunes have taken with the aid of a family tree extending back over centuries.
In recent times, however, managing the wealth of multigenerational families has grown in complexity due to a new dimension: the international aspect. The Julius Baer Family Barometer 2022 shows that roughly four out of ten ultra-high-net-worth individuals (UHNWIs) have family members on three or more continents. It’s common nowadays for wealthy families to have family members, assets, and businesses scattered around all four corners of the world.
For instance, it would be perfectly conceivable for a Belgian industrialist to marry a Swedish entrepreneur, set up home together in a swanky arrondissement in Paris, and own businesses in Germany. Perhaps their children study at a British university and they all enjoy summer holidays together at their holiday home in Spain, while the parents dream of a retirement spent producing their own family wine from a vineyard in Tuscany.
The opportunities afforded us by this more connected world are enticing. The free flow of talent, ideas, and goods and services have benefited us as individuals, as families and as economies. Few things are as alluring as the idea of relocating to somewhere with opportunities that better fit our private or business ambitions, or perhaps simply offer better weather and more inspiring landscapes.
1. Start by unravelling the legal patchwork
When it comes to bequeathing wealth to our children and grandchildren, however, this increasingly globalised nature of wealth brings with it many implications. Bodies like the World Trade Organization and International Monetary Fund may be influential in managing and controlling international trade and capital flows, but the problems faced by families spanning the globe have often fallen between the cracks of policy and regulation.
Against this backdrop, the interplay between the succession laws in different countries – or ‘jurisdictions’ to use the legal term – requires proper assessment to minimise the risk of conflicting laws or ineffective wealth planning strategies. Put simply, the core objective should be to ensure that the family’s wealth is passed in line with the wishes of the wealth creators. Any aspects of the legal and regulatory regimes, in all jurisdictions where connections exist, which might bring about a different result should be identified, consciously anticipated, and reviewed on a regular basis – particularly in case of any number of life events.
Different jurisdictions have different legal principles when it comes to testamentary freedom, for example. Whereas in England people have the right to leave their estate to whomever they choose subject to certain provisions for family and dependents, civil law in many other countries sets out rules for ‘forced heirship’. These rules restrict the ability of testators to decide how their assets should be distributed after death and allocate specific portions of the estate to family members with varying degrees of ‘closeness’ to the deceased.
In the European Union, a succession regulation was introduced in 2012 to minimise contradictions arising from the interaction of different systems of succession law in the EU. In certain situations, and in the hands of a competent expert, the introduction of regulatory provisions such as this can even represent an additional opportunity. For instance, it could be possible to choose with a will the inheritance law of the testator’s nationality – instead of the last habitual residence. The importance of changing the applicable inheritance law is that the testator can proactively plan with professional advice to achieve a succession that aligns with their wishes.
2. Tackle challenges across jurisdictions
The complexity of dealing with cross-jurisdictional succession planning is not unique to European families, of course. Different needs and trends are apparent across the globe. Given the rapid growth of wealth in Asia over recent decades, we see many UHNW families setting up single family offices to manage their wealth professionally. In the Middle East, special focus is often placed on topics such as asset structuring and liquidity planning, while security and protection are traditionally a top priority for families in Latin America.
Given the different law and tax frameworks, some succession planning solutions are better established or offer clearer advantages in one part of the world over another. For example, trusts have a long history of facilitating wealth structuring across generations in many common-law countries but are now also being recognised in other jurisdictions.
A common challenge across all regions is when a large part of the estate consists of illiquid assets like real estate or private companies. Often entrepreneurs want one family member to take over the business, but their wealth is largely tied up in the company and sufficient liquid assets to benefit other family members equally do not exist. To comply with forced heirship rules or simply meet the entrepreneur’s wishes, these situations require liquidity planning strategies and solutions to ensure the designated person will inherit the business and the other family members receive their share of the estate.
3. Face challenges across generations
Moreover, different generations are likely to have different ways of interacting, upholding traditions or doing business not only as a result of their birth year but also the culture or society in which they grew up.
Different countries put a different emphasis on topics like sustainability, for example. A granddaughter born to the millennial generation in a society like Denmark, with its strong ecological focus, might have very different opinions about managing the family business along sustainable lines compared to grandparents who built up their manufacturing business in a developing economy where environmental issues took second place to industrial advancement.
In places such as central Europe, family governance as a discipline is well established. However, what works for a family in Frankfurt or Zurich will not necessarily work for a family in Singapore. Failure to find shared values and a common purpose could lead to slow decision-making and eventually cause a breakdown in family relationships.
4. Get an overview to bridge the gap
The role of wealth planners is to help clients to develop a specific plan that takes into account how the individual families and societies work. We are conscious of the need to tailor our wealth and succession planning approaches to the requirements of each individual family. A long-established wealthy family in Asia and a newly moneyed family in Latin America can have very different requirements, so every aspect of governance must be tailored to the individual situation.
I start by encouraging clients to take stock of their current situation by drawing up a global wealth overview and getting a clear understanding of the consequences if something unexpected happens. Then, with the help of competent experts they can start an evaluation of the various options and prepare the appropriate plan. I then regularly encourage clients to review the plan when family members relocate or other changes take place in the family, business, or wealth situation to ensure that their goals are achieved. Importantly, planning strategies are not only relevant to ensure smooth succession, but also to provide for the needs of the family, and potentially for continuity, if the wealth creator becomes incapacitated.
What could be my first step in succession?
The complexity of handling succession in global families can seem overwhelming, but a useful tip at the outset is to take tiny steps. Doing something as simple as creating an emergency folder – further information about which you can find below – to collect all key documents in one place can be incredibly helpful to your family in difficult situations, no matter where in the world they are located.
Such a folder is clearly not a succession plan, but the process naturally stimulates future discussions about planning and succession.
The spread of family members around the globe is likely to bring both new opportunities and new complexities. Ultimately, when planning your succession strategy, the optimum approach is to navigate a route through the difficulties while considering the advantages and disadvantages that the different jurisdictions present to preserve you and your loved ones’ wealth for many years to come.