The changing environment in the past few years, including the global pandemic crisis, war in Europe and the rising effects of the climate change, has accelerated the discussion on wealth structuring as well succession planning for entrepreneurs and their families. Such discussions and the implementation of proper planning tools for private wealth and businesses certainly are positive. Before, however, “quick-fix” solutions are implemented, it is recommended to consider some project management-related aspects to help structure discussions and avoid common pitfalls. The following observations are of a general nature and typically need to be adapted for each family.
1\. Define the suitable perimeter of planning
A structured analysis to define the suitable and realistic perimeter of structuring
and planning is recommended. By a clear delimitation of the structuring and planning perimeter, the chances of success of planning and structuring for the in-perimeter items are dramatically increased. Structuring and planning just covering ‘all’ may, on the contrary, lead to dissatisfaction and, in the worst case, the discontinuation of structuring and planning attempts.
Relevant aspects to clarify typically include:
Which persons are in scope?
This first and very basic element encompasses the clarification of who
the planning person actually is; e.g., the entrepreneur/principal only, or also the spouse, or is it a spouse or descendant who may not yet own a significant portion of the family’s wealth but receive this at a later point in time?
What is the time horizon of planning?
The structuring and planning timeline is often underestimated by planning individuals or families. However, to adequately assess and select planning and structuring tools, it should be clarified and discussed with the affected family members at the outset whether structuring and planning is aimed to be fit for “forever” or whether it is not more realistic to rather plan for the next generation (i.e., around 20 years) only.
Which assets are in scope of the planning?
The perimeter of assets to be included in a structuring and planning concept depends on each individual’s or family’s specific situation. Perimeters can, for example, be distinguished according to the nature of assets (e.g., real estate vs. mobile wealth
/ business and entrepreneurial assets vs. personal assets, or art collection vs. the rest), and / or by geographical criteria (e.g., US assets vs. rest, or assets situated in residence jurisdiction vs. rest).
Which scenarios or life events shall be covered by the planning?
Structuring and planning projects should be targeted to specific events on a short-, mid- and long-term timeline and the likelihood of certain scenarios to happen needs
to be weighted. This helps the planning entrepreneur or family, again, to sharpen the power of planning and structuring tools and to align on courses of action if certain events occur. Typical events worthwhile to consider in a structuring and planning project include the demise of family members, their incapacity, liquidity needs as well as ongoing and event-triggered taxation. In contrast, the likelihood of an exit from a business or of a new marriage of a business owner very much depend on the business / family and the specific circumstances and may appear more or less likely.
2\. Keep the overview and do not overcomplicate
Older structures tend to include many layers of structuring (e.g., trust holding underlying offshore holding and company structure in turn owning the assets). The trend nowadays goes towards simpler structures and onshoring. Such simplification helps to facilitate compliance requirements for involved individuals and financial services providers. It is also more cost efficient and reduces the risk of litigation.
The “de-cluttering” process may take time and require certain efforts. In this context, even more, a concise definition of the planning and structuring perimeter is helpful. It goes without saying that it is generally a sensible approach to design new structures in a slim and manageable fashion.
3\. Involve those who are affected
It is important to involve the next generation / spouses in family wealth management, structuring and planning projects, and to maintain an open dialogue on an ongoing basis. But there may be other persons who should be involved: reliable and stable partners outside of the inner family and business circle are essential and indispensable to implement planning and structuring tools. They also can take a neutral, external function
to coordinate and manage processes and/or to facilitate discussions among family members. Such partners may include family offices and external wealth managers; executors; legal and tax counsels in affected jurisdictions, ideally with one overlooking the entire planning and structuring scope and coordinating with local counsels; and, where appropriate, guardians for elderly, minor or mentally/physically challenged family members.
Criteria to select such outside partners typically include their professional expertise
and reputation, an open and trusted personal interaction with the entrepreneur and the family, ideally an overlap on common values, and last but not least, their age (allowing them, ideally, to assist the family on a mid- to long-term perspective while still showing a track-record of experience).
Only once a structuring and planning project is defined, the moment has come to review in greater detail which legal and tax planning tools may be suitable and effective to, on the one hand, meet the targets set, and, on the other hand, retain sufficient flexibility to adapt the structuring and planning if the circumstances or planning needs change in the future.
