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Holistic Global Estate Planning – A Balanced Equation

“He plants trees to benefit another generation.” Caecillius Statius, (220 BC - 166 BC), a Roman poet

Closely akin to the effort of planting a tree, many would agree that material wealth is not made for its own sake. It serves as a powerful tool in the hand of the founder and is a valuable resource.

Without exception though, a founder and his wealth will have a parting of ways at some stage no later than the end of the founder’s life. Nevertheless, with intentional estate planning, the founder wields the power to determine how useful and efficient the tool remains well beyond his lifetime.

Estate planning now looms (or should loom) in the forefront for the generation of baby boomers (born between 1946-1964). In dealing with this transition, Asian patriarchs and matriarchs however face challenges which might not have affected their previous generations. Two of these developments are mentioned here.

Size of wealth has ballooned. Repeated data informs of fast growing number of high net worth and ultra-high net worth individuals in Asia. With the accumulation of significant assets and the visibility of wealth, the age-old practice of transferring ownership of the entire estate to the heirs may be a risky and unwise option.

The underlying concern was well expressed by a remark of a client: “If I pass on to each child USD3-4 million, I think that is too much as I started with hardly any money. If I give each of them USD20-30 million, that would be criminal.”

Family members are scattered across multiple jurisdictions. If there are no financial constraints, it is the norm for Asian families to send their children overseas for academic pursuits, usually post-secondary. In the generation of the traditionalists (those born in the period of 1922-1945), their children were under strong pressure to rejoin the family upon completion of their studies. The pre-warned dire consequence for not returning home was that the financial tap would be turned off!

Baby boomer parents are more indulgent and an increasing number of their children are settled in foreign jurisdictions. The emerging reality is the geographical dispersion of family members. The enlargement of the family geographical mapping means that assets transferred to children residing in these foreign jurisdictions will be subject to the respective taxation, matrimonial, and legal regimes applicable in these countries.

The foreign environments are likely to raise issues which are alien to what the founder is familiar with. For example, Malaysia practices generally a territorial system of taxation while countries like the United States, Australia and Canada (favourite destinations to send children for academic pursuits) adopt a worldwide taxation regime. In Singapore, the Women Charter segregates inherited property from the pool of assets for division in a divorce (with certain exceptions) but this special treatment may not be available in the adoptive countries where the founder’s children choose to reside.

Hence, the combination of significant wealth with the dispersion of beneficiaries in multiple jurisdictions serves as a clarion call for careful global estate planning. Domestic solutions may no longer be sufficient to deal with the global dynamics of the Asian high net worth families.

Asset Protection Structure: In global estate planning, a typical starting point is to establish what is normally referred to as the asset protection structure to hold various assets in stewardship for the benefit of the generations to come.

In transferring the ear-marked assets to the asset protection structure instead of to the children, the intention is to protect the ownership of these assets against adverse circumstances which may arise as the children’s lives unfold.

These may include creditors’ claims, marital breakdown, country and political risks, and spendthrift lifestyles. Other objectives may include lawful tax minimisation, avoidance of fragmentation of ownership in family businesses, and provision for beneficiaries with special needs.

Some of the pivotal questions to consider when establishing the asset protection structure are:

  • Which type of holding structure best serves the founder’s objectives? The options may include a common law trust, a civil law entity such as a foundation, a private trust company or a combination of these options. 
  • What is the location of choice: onshore or offshore, common law or civil law jurisdiction? 
  • Is it necessary to have a structure with indefinite period? 
  • Who should be engaged to be the trustees or council members of the structure? 
  • What is the cost benefit analysis? 

It is essential that the founder clearly identifies his objectives for establishing the asset protection structure, its benefits and the adverse consequence that may arise due to lack of planning. His understanding of these matters can serve as a strong motivation to complete the estate planning. 

The emotional dimension involved in the planning process cannot be overlooked. Unlike strategising for a corporate venture, the founder is dealing with issues strongly connected to the affairs of his heart. His mortality overcasts the entire process. He may be reluctant to part with ownership. He may find grave difficulty in surrendering control to independent service providers.

By staying attuned to the founder’s level of comfort, advisors may work with the founder to plan progressively. Partial planning may be better than no planning so long as the founder is alerted to the possible shortfalls. Having a structure the founder could relate to serves as a better assurance that the founder will uphold the integrity of the structure.

Family Governance Structure: In global estate planning, an asset protection structure to deal with the founder’s material wealth is only part of an equation. It is equally important to consider the family governance structure to protect the intangible assets of the family.

Great families are distinguished by their achievements and redeemed failures, the values and principles they espouse, the causes they champion, and their contributions to the community. These families thrive on trust, unity, and open communication. Members are collaborative and results oriented because they share a common vision. These are the intangible assets that make up the true wealth of the family.

In Asia, the extended family unit where multi-generational members live in the same household or in close proximity has been, until the 1980’s, the thriving model. In this system, common meals, traditions and endless family gatherings produce the glue that holds the family together. Values, principles, family identity and vision are passed on orally or witnessed in the lives of parents, grandparents, uncles, aunties, and other extended family members. This lifestyle allows greater connectivity and increased sharing of cultural and cross-generational family values.

The extended family household is no longer a given. Due to political, demographic and socio-economic reasons, Asian families are more dispersed. Hence the platform that promotes close communication and interaction, and the oral tradition of passing family values and visions are fast disintegrating. Deliberate measures must be taken to counteract these deteriorating trends.

A family governance structure that corrals the family as they grow across generations is essential. The drafting of a family charter may be the first initiative towards this end. The charter acknowledges the family’s roots and records defining moments of its past. It expresses the family’s values, beliefs, vision and mission. It speaks into the future.

In the family governance structure, entities and processes are put into place to facilitate communication, foster trust, and encourage interaction between family members. The aim is to instill and perpetuate family unity and identity, and to cultivate values and traditions. For example, annual family retreats are organised for “DNA-networking”. A disciplined approach towards philanthropy is embraced to encourage a habit of giving. Family members are invited to participate in committees established for various family purposes.

The family governance structure is intended to work in tandem with the asset protection structure. Family members are educated to understand the stewardship concept of wealth transition advocated by the founder. They are taught the appropriate way to deal with the advisors. On the other hand, an advisory committee consisting of appointed family members keep the asset protection structure well-informed of the ever evolving profile and needs of the family.

It is aptly observed that great families do not happen by accident. The lament in traditional estate planning bemoans the fact that the assets receive more attention than the heirs. A holistic global estate plan, on the other hand, defines wealth to include the human capital, reputational capital, spiritual capital and other intangibles of the family. A structure that deals with material wealth as well as the family as an organic unit is a balanced equation.

In achieving this equation, it is necessary to work with multidisciplinary teams of advisors who can turn theoretical advice into action plans. Equally important is to engage the participation of family members where appropriate. The hope is that the founder’s estate plan will be woven into the fabric of the family and the legacy of his wealth continues to flourish across generations.

When a founder invests time to transition his true wealth, the likelihood is that the founder’s life will in the final analysis serve as a prologue to the unfolding stories of his succeeding generations. 

This article was first published in Labuan IBFC's Q Report, Issue 2 (2013)


About Author
millie chan
Millie Chan practises law in British Columbia, Canada in the Vancouver office of Borden Ladner Gervais (BLG), a Canadian national law firm. She is in BLG’s Tax Group and the Corporate and Commercial Group, and is also BLG’s Senior Consultant, Asia Pacific Markets. Ms Chan is a member of the Law Society of British Columbia, the Canadian Bar Association, and the Canadian Tax Foundation, and serves as a director of the Malaysia Canada Business Council (B.C.). She is also a member of the Malaysian Bar and the Society of Trust and Estate Practitioners (STEP), Malaysia.

Ms Chan’s main area of practice is in international wealth transfer and global estate, asset protection and capital preservation planning. In particular, she advises high net worth families in Asia in this area of holistic global estate planning. She also advises immigrants to Canada on tax-planning options.

In addition to planning for protection and preservation of assets, Ms Chan works with families to establish strategies and processes to promote family governance, maintain family unity and uphold family identity and integrity. For this purpose, she travels regularly to Asia and works in synergy with BLG’s extensive contact base of financial institutions and offshore service providers for trusts, foundations and corporations.

Before immigrating to Canada in 2007, Ms Chan practised law in Malaysia for approximately 27 years at her own firm, W Y Chan & Roy, for whom she remains a consultant. Her primary practice focus in Malaysia was on corporate/securities and commercial matters.

Ms Chan graduated with an LLB (First Class Honours) degree from the University of Malaya. She is fluent in English, Mandarin and Malay, and is conversant in Cantonese and Hakka, as well as (minimally) Hokkien.
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