Despite families being more vocal about their focus on legacy and succession planning in recent years – something exacerbated by the Covid experience – and there being a shift away from tax as a key factor in structuring decisions, it is perhaps surprising that families are still failing to plan effectively for the future.
A study by Deloitte Private, for instance, has suggested that, at a global level, while four in ten high-net-worth families are set to undergo generational succession in the next decade, 41% do not currently have a leadership succession plan in place (Deloitte Private Family Office Insights Series).
This is equally the case within the Asian market specifically – research suggests that half of the incumbent generation of families in Singapore, for instance, are unprepared for generational handover, while less than half (46%) of the nextgen are aware of a formal succession plan being in place (PwC Global NextGen Survey 2024).
From our experience, however, we are seeing that the complexity of family dynamics, coupled with the ongoing challenge of imminent mass wealth transfer to the next generation, is prompting a growing focus in the region on the ability of trust structures to achieve legacy, succession planning and asset protection objectives.
Challenges
Family complexity and, more specifically, the fragmentation and diversification of families in Asia is a particular challenge where we are seeing growing focus in Asia.
Figures point, for example, to a subtle rise in the divorce rate in Asia in recent years – government data in Singapore shows that the number of marriage dissolutions climbed slightly by 0.2% to 7,118 year-on-year in 2023.
This is causing concern among wealthy families that their wealth, or even commercial interest in the family business empire, could be lost or watered down in certain cases, to ex-spouses or in-laws. This prominent fear of potentially losing a family fortune or business that has taken time and personal endeavour to create to in-laws and new family members has made asset protection a primary goal.
In tandem, a lack of trust between family members is becoming more of a challenge too. Figures from PwC’s Global NextGen Survey 2024, for example, show that in Singapore specifically, levels of trust within a family leave a lot to be desired compared to the global average. That report shows that only 20% of families believe that there are high levels of trust between nextgen family members and the current generation.
This mistrust is manifesting in different ways and resulting in a need for new thinking around both a family office’s operational approach in areas such as education and governance, and structuring solutions that can address these challenges – especially in Asia where pre-nuptial agreements are uncommon and difficult to enforce in courts.
The trust solution
Increasingly, more families are setting up trust structures to protect their assets, against external creditors and, perhaps more importantly and certainly more frequently, errant in-laws.
One recent example we have seen, involving a family owning a global hotel business, has brought this issue to life. In this case, the settlor had little trust in either their children’s own behaviour or the children’s partners, and so a trust structure was set up to protect family business assets from the in-laws, in an appropriate way.
More widely, where divorce or family separation occurs, holding a family business in a trust vehicle can also allow that business to continue operating and for beneficiaries to continue receiving distributions, without disruption or the need to sell the business – even where a marriage might fail or there is a breakdown in wider family relationships.
The application of the trust structure is also attractive in an investment context too. Real estate is a common asset among Asian families, with parents often acquiring property for their children. However, parents are increasingly wanting to ensure that the property where their children and their spouses reside is not considered as their own asset or matrimonial home, in the event of a potential future divorce.
In such cases, holding these properties in a trust, specifically for the benefit of the children, helps to ensure that it is not subject to any future divorce proceedings and therefore safeguard the property from potential errant in-laws.
There are also, of course, much longer-term benefits of using a trust structure to support succession planning aims.
With families invariably wanting to leave their legacy behind for many generations to come, a trust structure can be a more secure means of achieving that than a Will alone – which can be made public and be more easily contested in court.
A trust instrument can also be far more effective in expressing how they wish to distribute their assets over a long-term time horizon, via a Letter of Wishes and accompanying governance documentation, providing robust guidance to the trustee and providing long-term clarity and certainty.
At the same time, this approach also enables beneficiaries to have regular cashflow in the form of distributions from the trust, while also setting out clear parameters and thereby encouraging them to be financially independent and responsible, without the pressures of a sudden and significant inheritance for which they are unprepared.
In circumstances where family division or possibly even dispute threatens to unsettle the status quo, trust structures can also play a part in maintaining family harmony. They can provide a focal point for family engagement and dialogue and an element of comfort that the family legacy will continue through the family business and the preservation of wealth.
With the fragmentation of families and the ongoing challenge of significant wealth transfer set to continue to shape the thinking of families in Asia in 2025, succession planning, articulating what legacy means, and the effective use of trust structures to protect both family business and wealth assets will continue to be key themes in the Asian market in 2025.
To find out more about how we can support the growing needs of private clients and family offices in Asia, please contact Alice Quek, or use the button below to reach our Private Client team.
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