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Understanding & Preserving Family Wealth

See also: Talking About Money

There are many things to consider when it comes to understanding family wealth and preserving it for future generations. Often adult children are unaware of all of their parents’ financial affairs and this can lead to poor decision-making when they inherit the family wealth and even financial loss so for that reason it’s a critical topic for everyone to grasp.

The main areas to understand are the property/real estate and investment portfolios, including any debt obligations, and the current investment strategy and whether it’s the right investment strategy. Older family members should also talk to the younger generation (once they are of an age) about their investments and ensure they have appropriate wills, life insurance and powers of attorney in place to preserve the family wealth.

So, let’s look at these factors in some more detail.


Understand the investment portfolio

Often many family members do not understand how the family wealth has been invested, or what specific investments they have, let alone understand how these investments work and the risk associated with them. When markets are rising and investments performing well there is less need to understand the intricacies, but when markets are not rising it's important for families to be aware of their risks and costs.

So, another key point within understanding the portfolio is actually understanding debt positions as well. Many families will have debt such as a large mortgage or bridging finance which is secured against an asset such as a property or against an investment portfolio. But, as with the investment strategy, family members are often not aware of how this debt works and what their responsibilities are.

Investment Strategy

For any family with a long-term investment objective, they should focus on long term quality assets. They've got to build a strategy which is appropriate to their individual circumstances, their risk appetite and return objectives. Getting the right asset allocation is key as is planning for 10 to 15 years or even longer when planning for succession and investing for the next generation and even the generation after that. Consider what your family can have in the future and how to protect your wealth for future generations. How to pass it down in the most efficient manner, especially if a family has significant amounts of wealth that they might not need in their own lifetime. For wealthy families with complex financial affairs and assets in a number of countries, the efficient transfer of their estate to their chosen beneficiaries is even more important.

Wills

Many families have no wills in place at all or their wills are no longer appropriate for their circumstances. They might have one will, which they think covers their entire estate, but actually, if they have assets and property in other countries then a single will in their home country may not cover all of their assets in different jurisdictions or be enforceable in all the various jurisdictions.

Adequate Life Insurance

On the point about succession planning and decision making and protecting the estate, similar to the importance of wills, families often haven't taken the time or haven't even thought about ensuring that life insurance is in place. It's one of those things that people know they should do, but find any excuse not to actually do it.

Having the right life cover provides a family with sufficient funds to meet liabilities and commitments and maintain their standard of living. There is then no need to dispose of any assets, when there is an inheritance tax liability to pay. That's one of the main reasons people take out life insurance to make sure their beneficiaries can settle any liability that may arise as a result of death.

Also, many people who had life insurance policies from their employers, such as death in service benefits, may no longer be with their employer anymore, but have not realised that they haven't replaced that insurance cover. People's circumstances change all the time so it is essential to review the measures and the cover in place, to make sure it's fit for purpose today.

Powers of Attorney

Along with wills and life insurance it's imperative that any family should have the right lasting powers of attorney in place. A surprising number of families don't have these documents in place yet they're vital for key family members. In the event of mental and/or physical incapacity, without these documents, they will not be able to make the right decisions on behalf of the incapacitated family member with respect to their property and financial affairs, or their health and welfare.



Keeping Track of Investments and Documentation

Regular oversight of family wealth will lead to better preparedness, better decision making, and, of course, better governance of the family estate. It does take a certain mindset to bring all this information together in an easy-to-understand format and to have open and honest conversations with other key family members. Families should always engage with other family members, maybe their children who are of an age now where they can actually understand and actually can appreciate the family dynamic in terms of the assets that they have. Quite often key family members aren't fully aware of the family's overall wealth position if the knowledge and information is kept only by the father and mother of the family.

This highlights the importance of having an up to date, centralised and accurate filing system, which can ideally be accessed anywhere in the world. If something were to happen to Mum or Dad, how would other family members know how to access the family wealth? Where would they look? Who would they contact?

An accurate, centralised filing system is exactly how people can keep track of family finances. It’s how they can oversee their wealth and make the right decisions. On the real estate side of things property is a very tangible investment that family members are all aware of, but if there are other less tangible assets, such as stocks and shares, these sorts of family assets can be lost to the next generation if they are not documented correctly.


About the Author


Enness Global are a leading mortgage broker for prominent, high-profile, high net worth individuals. We have an envied pedigree when it comes to providing mortgage solutions for even the most complex financing scenarios, enabling us to have advised and completed on some of the biggest mortgage transactions across the globe.

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