As India’s economy grows, the population of ultra-high-net-worth individuals (UHNWIs) — those with a net worth exceeding $30 million — is projected to surge by 58.4%, from 12,069 in 2022 to 19,119 by 2027. UHNWIs, who often have assets in multiple countries, face intricate financial and family situations. Due to complex asset portfolios and the need for strategic legacy planning, estate planning is becoming particularly crucial for UHNWIs for the following reasons:
i. Wealth Transfer: Estate planning ensures smooth wealth transfer according to individual preferences. Without a plan, this process can become mired in complications stemming from intestate succession laws, cross-border taxation, disputes, delays, and the emergence of unintended beneficiaries. Such issues can cause assets to remain unsettled for extended periods, sometimes spanning several generations.
ii. Asset Preservation: Estate planning helps UHNWI families shield their wealth from unwanted claimants, assuming it is executed with genuine intentions. It also helps preserve assets for less financially savvy or young family members. By effectively structuring their assets, families can ensure the security of their wealth for future generations.
iii. Business Continuity: For UHNWI families that own businesses, estate planning is crucial to ensure operational continuity. Often, a patriarch’s reluctance to cede control can complicate matters after his passing. Sometimes, the next generation may not be interested in joining the family business. A clear succession plan is essential to address these issues, guiding the management or transition of the business and establishing governance structures for sustained continuity.
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iv. Philanthropic Goals: Many UHNWI families aim to create a philanthropic legacy. Estate planning allows them to dedicate wealth to charitable causes or set up trusts and foundations that align with their values, ensuring their contributions make a significant societal impact.
v. Family Harmony: A well-crafted estate plan can prevent family disputes by clearly outlining asset distribution and roles in managing the estate. Additionally, it provides necessary transparency needed to minimise trust issues and potential conflicts.
It is essential that such families put in place a comprehensive legacy plan that aligns with their values and goals and focuses on certain key elements.
Key Elements of Legacy Planning
Estate Planning: Estate planning involves strategically organizing assets for smooth transfer to heirs, minimizing taxes, and legal complications. Families should collaborate with wealth planners and legal and financial experts to develop comprehensive estate plans using tools such as wills, trusts, and other legal instruments to reflect their wishes and protect their assets.
Family Governance: For ultra-high-net-worth individuals, establishing a strong family governance structure is essential. This involves crafting a family constitution or charter that clearly defines the decision-making processes, roles, and responsibilities for family members involved in managing the family’s wealth. A well-defined governance structure helps prevent conflicts and ensures continuity across generations.
Education and Mentorship: A fundamental component of legacy planning involves educating the next generation about the family’s wealth, values, and responsibilities. It is important for families to offer opportunities for younger members to gain knowledge in financial management, business acumen, and philanthropy. Implementing mentorship programs within the family can serve to bridge the generation gap and equip the next generation for future leadership roles.
Succession Planning: Succession planning focuses on identifying and preparing successors to assume leadership roles within the family business or to manage the family’s wealth. Having a clear plan in place ensures a seamless transition and minimizes disruptions to both business operations and asset management.
Consolidation of Assets: Holding multiple accounts and assets without a clear end purpose can lead to inefficient management and significant wealth transmission loss. It is crucial to inventory all assets, assess the long-term objectives of holding these assets, and formulate an action plan for consolidation when necessary.
Legacy planning for UHNWI families in India requires a detailed and comprehensive approach. It’s important to consider cultural nuances, tax implications, and succession planning to maintain and grow family wealth through generations. Working with professionals and regularly reviewing the plan are essential steps to ensure that the family’s legacy remains robust and sustainable.
(By Sneha Makhija, Head of Wealth Planning, Sanctum Wealth)
Disclaimer: Views and facts expressed above are those of the author. They do not necessarily reflect the views of financialexpress.com.
