In the circle of life and death, death is inevitable and thus succession is certain. If the baton must pass, it might as well be passed on in an organised manner. An unplanned succession may lead to multiple issues. Without clarity of the predecessor’s intent, there is considerable room for ambiguities which may lead to factions arising within the family members.
Why should you get an estate plan? Is planning for one’s estate imperative?
India has historically been a patriarchal society, with the head of the family having the final say. In our experience of serving over 100 ultra-high net worth families, this has transformed significantly in recent times. The next generation has different thoughts that are more aligned to the fast-evolving business models. Typically, a generation gap would mean a couple of decades but now, siblings with even 5 years difference think very differently. Difference of thoughts/ideologies spilling into business is detrimental.
An unplanned succession may lead to multiple issues. Without clarity of the predecessor’s intent, there is considerable room for ambiguities which may lead to factions arising within the family members.
Lastly, statutory changes have also necessitated the significance of Succession Planning. While, currently, there is no concept of Inheritance Tax/Estate Duty in India, time and again there is clamour for re-introducing these concepts. Such tax, if introduced, would expose the entire estate to the tax and entail a huge cash expense to the family heirs.
Ralph Waldo Emerson famously said, “It requires a great deal of boldness and a great deal of caution to make a great fortune; and when you have got it, it requires ten times as much will to keep it.”
What should everyone know about estate planning?
For any succession plan to achieve its intended objective, it must be well consulted between family members, thought through in detail, appropriately documented and effectively actioned. Typically, the key essentials of a good succession plan are honest and transparent communications, segregation of economic succession and management succession, a collaborative approach driven by a win-win objective, and robust documentation.
Over the years, families have typically adopted various practices for succession planning. These can broadly be classified into 3 modes: 1. Wills, 2. Use of Trust Structure, and 3. Family constitution.
In our experience, families have utilised either one, or a combination of these to design their succession plans. Most families realised that while the process is not easy, it is imperative. Initiating the conversation within the family is the first and the most arduous task, but once the ice is broken, with reasonable commitment from family members and a well-established ecosystem of advisors/ consultants, things start to fall in place. The key is to conceptualise the structure with all agreed family principles. Typically, most families opt for a Trust Structure as it facilitates family succession and potentially shields it from Estate Duty implications. A Trust Structure would also help ringfence family assets from possible claims arising in future in relation to business and events such as divorce.
Do you discern a different approach towards estate planning by the Next Gen as compared to the Gen X?
In our experience, the Gen Next family members warming up and attuning to the idea of planning facilitate the Gen X transition into a planned and effective structure. It then assists families to remain cordial, in harmony with clear haves/have nots and do’s/don’ts. Often, Next Gen’s approach and mindset is the “catalyst” to the success or un-success of a GenX's estate planning journey.
Have families warmed up to the idea of engaging estate planning professionals?
Succession planning is a personal and sensitive matter. While as it may be, increasingly, families have started seeking professional help to address legal or technical aspects of succession planning and be guided on sensitive matters based on best practices being followed by most family offices. Families have realised that it’s essential to have experienced personnel to handhold them to decipher critical aspects and assist them in navigating through this delicate activity.
Much like a referee in a football match, the professionals/Trusted advisors serve as neutral parties and are seen as unbiased, which only helps in the consensus on key differences in Succession Planning.
How does Waterfield approach estate planning?
In our experience, trusted advisors are instrumental in enabling the family to navigate through certain discords and plan for challenges to arrive at a common vision/family objective and build governance structures to preserve wealth across generations.
For example, at Waterfield, one of our clients wanted to create a seamless ‘Structure for Succession’ covering management of the family’s global investments, identifying suitable new businesses for the next generation and management of the charities. We worked over an 18-month period with the Family Principal, his family members, and senior colleagues to ensure that a robust governance framework was put in place for all the above areas identified. Specifically, Waterfield addressed issues around the organisation structure and bench-strength, educating the next generation on their roles and responsibilities and providing best-practice guidance on specific policies/processes that could be adopted by the Family/Family Office to manage the family’s objectives.