When it comes to estate planning, the needs of high net worth individuals (HNWIs) have become more complex with globalization and changing lifestyles and demographics. This is especially true for young entrepreneurs and second-generation executives who are taking over the family business.
According to Tan Ping Ying, CEO of Affin Hwang Trustee Bhd (AHTB), many entrepreneurs today become millionaires in a short space of time. A large number of them are in their thirties and have domestic and foreign assets.
This group tends to believe that it is too early to plan their property, notes Tan. “But it’s never too early because these people are young and heavily invested in their businesses. You got in the money very quickly, so the possibility of losing it very quickly is also very high. So it’s important to find ways to maintain wealth, which can be done through a trust structure, ”she says.
“They could put some assets – liquid or illiquid – aside and park them in a structure so that they can have peace of mind as they continue to grow their business. In the event that something happens to them, these assets can meet their family’s immediate needs. “
Another complexity stems from the rise in divorce cases, especially among younger couples. In this case, the preservation of family wealth may be at risk, Tan says.
“There is a risk that their parents’ assets will be exhausted due to a claim by their ex-spouse in a divorce case, especially if there is no proper structure in place. This is important to keep in mind as in the event of a divorce your spouse can file a claim against anything you own, ”she adds.
“This applies to both Muslims and non-Muslims, regardless of whether there is a will. As long as the inheritance has been transferred to the beneficiaries of the estate, it can be challenged by the ex-spouse. “
Many of the older HNWIs have set up a Special Purpose Vehicle (SPV) structure or foundation and consider this to be their estate plan. But that’s not enough, says Tan.
“Whatever business or personal assets they have accumulated will be incorporated into a special purpose vehicle with their spouse and children as shareholders. But they forgot to look beyond 5 or 10 years, ”she adds.
“What happens if one of the adult children dies? What will happen to this stock and how will it be redistributed?
“If an HNWI only has a SPV and their adult child dies, leaving a spouse and children, a percentage of the shares go to them. If the spouse remarries, he or she can pass on the shares in the SPV to the new family. Therefore, another party will end up owning a stake in the SPV. “
Tan says there is a way with confidence that you can prevent this from happening. “Before, for example, the company’s shares are passed on to a son or daughter, the parent could set up a trust structure and park the shares in it to avoid unwanted claims.”
PROMOTING FAMILY UNITY
Tan developed an interest in estate planning when she was a practicing attorney. During her conversations with clients, she found that there were numerous problems with estate planning.
“At that time I did a lot of letters of will and advised clients on estate matters. I have seen many unresolved estate issues and issues in the estate that would take many years for us to distribute the assets to the deceased’s intended beneficiaries, ”says Tan.
She later worked as a trustee at a local trust company. The opportunity to join the private trust industry came when she met Yap Huey Hoong, the CEO of a private trust company.
“I helped her prepare legal documents for trusts. After that, I started meeting customers. I listened to their problems and recommended solutions, ”says Tan.
“It was then that I realized that I really loved this job. I feel a strong sense of accomplishment and satisfaction when I can help my clients solve their problems. “
Tan joined AHTB as CEO last January, focusing on building the business and processes within the group’s business strategy team. The opportunity to take the helm came when Affin Hwang Asset Management Bhd’s CEO Teng Chee Wai and Affin Hwang Capital Group’s CEO Datuk Maimoonah Hussain offered her the job.
AHTB was founded in 1990 with corporate trusts as its core business. A restructuring recently took place and was completed in April of this year. With the transformation, the company has a new vision and is now focusing on niche markets.
According to Tan, the company offers bespoke services such as private trusts aimed at maintaining prosperity for both Muslim and non-Muslim HNWIs and ultra-
HNWIs. “AHTB complements the investment banking and asset management services of our group. We specialize in wealth and estate planning services for HNWIs, including setting up trusts, making wills, engaging private investment companies, and providing offshore trust solutions and liquidity planning, ”she adds.
“I have a team of young but experienced professionals. I tend to hire those who have worked in legal practice because there are many legal issues involved in working as a private trustee. This is unique in the industry. “
AHTB defines HNWIs as those with a net worth of RM 3 million and more and ultra-HNWIs as those with a net value of RM 30 million and more. The company specializes in bespoke wealth planning services that emphasize family values rather than off-the-shelf products, Tan says.
“In addition to wealth planning, our goal is to promote family values and unity by helping our clients leave a legacy for the next generation. That way, we believe that HNWIs can keep their prosperity and give some of what they have back to society, ”she adds.
The team’s approach to clients seeks to meet as many members of the settler’s family as possible in order to get to know them better. “If possible, we would like to meet all of the family members named as beneficiaries of the trust. We do this because we believe that the settler’s family will have a sense of belonging, ”says Tan.
“It is very important to understand each family member and see what each family’s vision or mission is to have that particular structure and how we can help the family take the business to a higher level.”
Much importance is attached to family unity, says Tan. “Just as it is important to keep wealth together, it is also important to keep family together. We will have a special structure in which they can meet at least a few times a year. The more they meet, the closer they will be to each other. This is properly documented, ”she adds.
“In the event that they decide not to attend any of the meetings for no good reason, one of the many ways to encourage their attendance is to incentivize or be excluded from some of the payouts. This is important because if the family doesn’t get along, it affects the business too. “
AHTB takes a holistic approach to estate planning, says Tan. “We do this by examining all of your assets, whether they are held in Malaysia or overseas. We also examine the tax implications of the location of the assets and the residence of the beneficiaries. ”
She adds that the team has also put in place a comprehensive and robust system of governance. “This gives confidence to our HNWI customers who have entrusted us with their fortune and their wealth. We have an internal committee that deliberates on all customer inquiries before deciding on or approving matters. This is to ensure that the client’s goals and the interests of the beneficiaries are protected. “
In the past, HNWIs – especially in Asia – preferred to accumulate assets that generate steady income, such as: B. Real Estate, as it helps fund big ticket items like their children’s education. This meant investing a large portion of their wealth in assets that were difficult to liquidate when cash was needed immediately. But that trend is changing, notes Tan.
“People are starting to realize the importance of having liquidity, whether or not they have a trust structure. I’ve seen more people diversify their investments in different assets and geographic locations on land and abroad, ”she adds.
Among the various types of trusts, discretionary trusts have become popular. Tan says this is because they give customers the flexibility to revise the structure’s goals if necessary.
“A discretionary trust offers some flexibility in terms of its objectives for changes in the client’s circumstances. For example, many years ago a customer may have set up a foundation for the purposes of their parents, wife, and young children. But 10 years later, due to changes in family dynamics or other circumstances (for example, that the parents died or the young children grew up), and also changes in the class of assets injected, the client was able to check the structure to see how it was can be adapted to the current situation. ”
The advent of digital currencies like Bitcoin has raised concerns about how the wealthy can safely protect such assets so that they can be carried over in the years to come. Tan said these assets have not yet caught on with the HNWIs in Malaysia.
“The first thing to do is to set up a property registration system for the digital assets. As a prudent trustee, we need the digital assets that are legally identifiable and recognized before we can take them over to ensure we can protect the interests of the beneficiaries, ”she adds.
For other types of assets, the legal aspects and potential costs of maintaining them need to be assessed, says Tan. “We need to choose the most efficient vehicle or structure for such conservation, taking into account the transfer of assets to the next generation. Such valuable assets are likely to create intellectual property issues that need to be addressed as soon as possible to ensure long-term value protection and transferability. “
She adds that other concrete investments like paintings and clocks are becoming increasingly popular with HNWIs in the country. “Having services such as storage, insurance and certified appraisers in place enables these specific investments to thrive and create a market for them.”