Decedents. Descendants. Lineage. Passing down wealth. The language we use when talking about inheritance often suggests distributing assets vertically downwards among family members. This notion of inheritance, which dates back to ancient times, is often influenced by a sense of duty and protection towards one’s immediate family, by social norms and traditions. Last year’s Julius Baer Family Barometer found that intergenerational wealth transfer is the number one priority for families globally, with families deeply concerned about ensuring a smooth transition of wealth and leadership to the rising generation.
While families remain focused on safeguarding their wealth against volatility and uncertainty from one generation to the next, family wealth transfer trends are gradually being modified by shifting wealth dynamics and social transformations. Changing demographic, geographic, and cultural patterns mean it’s no longer simply a given that wealthy individuals will bequeath their assets to their immediate offspring. Instead, many high-net-worth individuals are choosing non-traditional alternatives in which they distribute their wealth, or at least a greater proportion of it, horizontally – among spouses, siblings, extended family, business partners and close friends.
New perspective for childless couples and individuals
Traditionally, such horizontal wealth transfers have served as a meaningful way for those without direct heirs to allocate their assets. By spreading their wealth among loved ones and close relations, individuals can create a lasting impact and provide support to the people that have enriched their lives, building a legacy that extends beyond their immediate family. Consider, for example, a scenario where an affluent individual wants to provide financial assistance to a highly talented niece who’s always dreamed of attending a top-tier university. Despite her abilities and strong work ethic, the niece faces significant barriers to accessing the quality education she needs to thrive, due to financial constraints. By making a horizontal wealth transfer, the individual can provide crucial support by covering some or all the niece’s college costs, giving her the opportunity to realise her academic potential without being limited by financial concerns. This act of kindness not only strengthens their bond but also gives the individual a sense of fulfilment, knowing that they are making a meaningful investment in their niece’s future.
A means of protecting your children’s best interests
Intragenerational wealth transfers can also be a valuable wealth management strategy for families who do have children. By incorporating horizontal giving into their estate plans, parents can create an effective wealth transfer strategy.
One approach is to transfer wealth to a spouse first, and then to descendants. This multi-phase process offers several advantages, particularly for families with young children. If one parent passes away while the children are still young, the surviving spouse can maintain control over the assets, ensuring that the children’s interests are protected, and their needs are met. This approach can help prevent issues that might arise if the children were to inherit a significant amount of wealth at a relatively early age or simply when they are not ready.
It’s crucial that any families evaluating this strategy consider the applicable inheritance laws and tax consequences. Many countries have specific tax regulations in place for wealth transfers to spouses that can influence how attractive this approach becomes. And even in countries with forced heirship rules, assigning the free portion of the estate to the surviving spouse can provide them with greater control over the assets. As discussed in last year’s Family Barometer, the shifting tides around taxes applying to wealth and inheritance requires constant vigilance and proactive planning so that the potential impact is understood well in advance, and adjustments can be made in the event of key changes.
The growing presence of women in high-net-worth circles
The horizontal approach to inheritance, with the wealth being passed first to the surviving spouse, has important implications for women’s wealth.
Globally, women have a higher average life expectancy than men. According to the World Health Organization, Swiss women have an average life expectancy of 85.1 years, compared to 81.8 years for men. It’s similar elsewhere in the world (US: 80.7 years vs. 76.3; Japan: 86.9 years vs. 81.5). On top of this, women are likely to be younger than men when they get married. In Switzerland, a man is on average likely to be almost a full two years older (32.4 years) than a woman (30.5 years) when he marries for the first time, according to the country’s Federal Office for Statistics. In other words, typically wives are more likely than their husbands to be widowed and inherit the family’s wealth.
This, together with broader forces in the economy, is adding to a growing concentration of wealth among women. According to Julius Baer research, women now make up over 11 per cent of the world’s millionaires, nearly double the share in 2016. With women’s incomes and wealth rising, analysts expect women will make up a growing share of high net-worth investors and consumers, making them key decision-makers in the great wealth transfer.
Expanding your circle of influence
Some individuals feel a closer bond with friends or business acquaintances and wish to extend their generosity beyond their own genealogy. By distributing their wealth among a wider circle of relationships, they can create a lasting impact that transcends their immediate family ties and shape a legacy that authentically reflects their character and intentions.
Here too, it’s essential to consider the applicable succession laws. In many jurisdictions, there are clearly defined regulations governing how estates can be managed, especially if you do not have a will in place. In Switzerland, for example, compulsory inheritance shares set legal minimums that you must consider. While there is leeway for benefactors to customise their inheritance plan, the implications can be wide-ranging – therefore anybody considering this approach is recommended to take it up with competent tax and legal advisors at the earliest opportunity. In more complex situations involving substantial wealth, different types of assets, multiple jurisdictions, or intricate family dynamics, tailored wealth planning solutions can be explored with the guidance of experienced advisors.
Additionally, philanthropy provides a powerful means of channelling one’s wealth towards driving meaningful change. By allocating a portion of their wealth towards philanthropic endeavours – perhaps by supporting education initiatives, healthcare programmes, or community development projects – individuals can make a tangible difference in the world and establish a legacy that extends far beyond their personal relationships. Explore more on this here.
A sideways approach that opens new horizons
Horizontal wealth transfer offers a solution by allowing individuals to distribute their assets among a broader network of loved ones and close relationships. This approach recognises that wealth is not just about passing down assets to the next generation, but also about creating a lasting impact that enriches the lives of those closest to the giver or in need of help.
By breaking free from traditional norms, individuals can create a more personalised and meaningful approach to wealth transfer. They can prioritise their relationships and ensure that their assets are allocated in a way that reflects their values and priorities.