Indulge us a little as we start this post by elaborating on the wealth planning definition: We view wealth planning as the sum of arrangements to grow, preserve, protect, and transfer your wealth. It comes with legal, financial, and tax planning to achieve the ground plan's objectives. How to protect family wealth is an essential pillar of a family wealth plan, but in our modest opinion, the human element for everyone involved deserves at least equal recognition. The entire process is about you and your loved ones' future and should give everyone peace of mind.
Human-centric wealth planning
But how do you focus on the human element? This post is about some of the design tools we use for individualized human-centered wealth plans. Each situation is unique. Many of the moving parts depend on the wealth owner's family, the involved generations, the type of assets and family businesses, and their location, to mention just a few. We don't intend to provide you with an exhaustive list of tools but to introduce you to concepts that go beyond traditional financial planning and wealth management. This is also a call for curiosity and creativity when considering your wealth's purpose in life. Always with your loved ones at the center of your wealth plans.
It all starts with your story: it tells a lot about how you got to where you are now, which obstacles you had to overcome, and what has been significant during the journey. It may already reveal what you stand for, provide clarity on your mission and vision, and which impact you want to make. You are original, and since you are designing your wealth plan, there could be an inspiring story behind it.
Your family's story has the same potential for unique discoveries: maybe you have an ancestor known for exemplary actions and values in your community. Your and your family's story is a great starting point for defining the purpose of wealth and illustrating correlated life concepts that inspire and empower: it represents your family's heritage and culture. It captures the past, present, and future and sets the scene for wealth planning in a human context. If stories don't resonate that much with you, they may still help everyone else in your wealth plan to better connect with your point of view and link your story to their experiences. Your successors are more likely to remember your purpose of wealth based on your history and how it made them feel, rather than a static and generic definition of why it may be valuable to them.
Values are desirable, moral, and ethical character features appreciated by the community surrounding us. Values guide our actions and influence most of our beliefs and decisions. They impact our well-being and motivation, and their infringement can be an often-overlooked origin of discontent. Concrete values trigger prioritized thinking, behaviors, and feelings directed to our lives' relevant aspects. They can be the decisive factor towards a unified and robust community alignment in meaning and connection.
Human-centered wealth planning builds on values that translate into concrete actions. Based on your story, you should be in a position to identify your most important values. Suppose fairness is one of them: it could then translate into being respectful, standing up for others, and having no tolerance for discrimination. Finally, they should translate into tangible results, such as a culture of respect and accountability.
Wondering what the values' correlation with wealth planning is? Well, we believe that they will help you understand your needs and your ideal environment's requirements. What guides you will determine what you require. And with needs, we don't mean the technical wealth planning tools but the underlying reasons for your wealth plan. We neither refer to asset protection, tax efficiency, or succession planning but to demands beyond mere technical considerations such as peace of mind, providing for your loved ones, controlling outcomes, and making a lasting impact. Such clarity will be most beneficial to design a human-centered wealth plan and will guide you throughout the entire process. If you share your story and values with your advisors, they will hopefully understand your needs much better, and you prevent them from jumping to conclusions.
The ideal environment
The environment we are in has an enormous impact on our well-being. When you furnish your home, there's a good chance that you have a vision of the ideal setting, draw inspiration from other houses, magazines, movies, or your spouse's wishes.
You may not easily find such inspiration for your wealth plan, but you can still define your ideal environment. Just list your worst experiences and biggest pains associated with wealth in your business, private, and financial life. The next step is to list them according to your reluctance, i.e., the immense pain goes on top of the list. You can then translate them into the opposite, and there you go with the requirements of the ideal environment for your wealth plan. To make it even more concrete, you can select the top three as must-have criteria and the following two on your list as nice to have.
The interim result
Let's take stock of what we have thus far: a story that may inspire, shift opinions, and get the beneficiaries of your wealth plan to follow your definition of the purpose of wealth. It could include milestones, challenges you had to overcome, and your gain from it. Yes, it's personal, and you may have to show vulnerability, but we are talking about a human-centered approach here. It is supported by a clear set of values that translates into concrete actions, ideally captured in your story and thus in an authentic environment. It further reflects an emotional journey and a strategy. And we have a vision of an ideal environment towards which the various wealth planning tools need to deliver in a human context and shared purpose. Your wealth plan should ultimately support your family's unity, inspire them, connect them on an emotional level, and enable meaning and culture.
Some areas deserve a more specific focus. Clarity on values and needs will lead to goal setting and a family's vision and mission. Various approaches are coming from the corporate world that build on the awareness of objectives. They have in common to imagine where you will get one day by doing things in a specific way every day. Both vision and mission strongly correlate with values, and a values statement may integrate into the family framework for guidance, accountability, and responsibility. If values, purpose, vision, and mission are embedded in your family's story, the narrative will become compelling, memorable, and inspiring.
Let us stress a point here: a human-centered wealth planning process is inclusive. This post is directed to you as a wealth owner, but we do not advise you to follow your own process without involving your family wealth plan's beneficiaries. Only with family members' involvement, you achieve awareness and commitment to preserve a family's heritage over generations. Ensuring everyone is part of the wealth plan will empower them in many ways, and values, identity, and purpose can become their Northstar. We recommend involving third-party advisors and coaches to guide you and your family through a structured approach and overcome eventual barriers to an inclusive dialog. Finally, depending on the family size and generations, a governance framework for collaboration and communication can be designed for a comprehensive wealth plan. Then it's time to challenge it.
The value proposition
Imagine your wealth plan as a product. There's no market to challenge it, and you may not be around anymore to evaluate the final result. There are not too many chances to get things rights, and that's why a value proposition can make a difference.
The value proposition explains how your wealth plan solves problems and improves your and your family's position. In product terms, the value proposition on the customer side (i.e., you and your family) defines needs (rational motivators and the job to be done), pains (fears and undesired outcomes), and gains (wants and emotional drivers). On the product side, it outlines the experience (improvements), the features (services), and benefits (outcomes). You hit the value proposition sweet spot if your and your family's needs overlap with your wealth plan's intended value.
Let's illustrate the concept with a single family office, a service entity for a given family. If it is built merely around the founder, it may not consider the other family members' needs, and they may look for external substitute offerings to achieve their goals. Not a desirable basis for building a legacy over generations. The same may apply to any other arrangement to preserve family wealth over generations, particularly if a family business is involved. A value proposition offers the benefit of analyzing your family's needs, the value your wealth plan creates for everyone involved, and defining the connected meaning and message.
Risk management in wealth planning
As a wealth owner, you face many threats and challenges. You will need to develop a strategy, orchestrate wealth planning experts and tools and stick to your long-term family wealth plan. While building wealth is already a challenge, preserving and protecting your wealth for the next generation require champions league levels of wealth planning discipline. Your needs and goals are fundamental to your individual wealth planning strategy, but you should also view things from a risk perspective and think in scenarios that may jeopardize your wealth. We will touch on some of them and elaborate on how to protect family wealth beyond financial planning and wealth management.
Entrepreneurs and professionals are typically exposed to liability risks in their business and professional life. Although corporate structures and insurance coverage may limit exposure, there are many scenarios where creditors may want to go beyond them to satisfy their claims. Malpractice and directors and officers liability litigation has become mainstream, and it is a common strategy to go after business owners or executives in corporate liquidation and bankruptcy proceedings. Court orders may freeze your assets until a final dispute decision has been reached, even with insurance coverage.
If the above strikes a chord, you should evaluate your legal system's asset protection options. A modern economic and legal environment acknowledges the risks wealth owners face and safeguards their family members' financial interests in bankruptcy and third-party enforcement proceedings. Life insurance policies and asset protection vehicles such as trusts and foundations are legitimate tools to provide for your loved ones' financial security and protect family assets from third-party claims. However, the effectiveness of such tools protecting your wealth for the next generation is restricted. In basic terms, you need to give up control over the assets, there are no pending or contingent claims at the time of settling, and you have to remain solvent. Let us get this straight: only an irreversible legal separation from your assets for the benefit of your family will protect such assets from future claims.
Asset protection does not have the best reputation since abuse cases to hide assets are a reality and often reported in the media. That's only one reason we believe in simple wealth planning and asset protection tools such as life insurance policies that are understood globally. Keeping things simple is an excellent way to legally future-proof wealth and most helpful if your reputation becomes at risk. We also recommend considering asset protection for future generations. Keeping a part of family wealth reserved for your next generation's children is often overlooked but an effective way to preserve wealth over generations. Again simplicity will lead to the best results.
Sometimes litigation arises within the family itself. The reasons are many, and before assessing the legal aspects, you should perform the groundwork and define your family's values, purpose, and governance together with the family members. In our experience, robust values-based governance with open and transparent communication is the most effective tool to prevent litigation and protect family wealth. Family dynamics are a human course, and you cannot focus enough on the human element in the wealth planning process and correlated risk management. Conversations about wealth preservation and asset protection may be challenging but, at the same time, crucial to anticipate potential risks. If you have been busy making money during your life and career, you can start the risk assessment with yourself and your closest relationships.
What's the legal take on this? Divorce is a most common threat to family wealth, and a prenuptial or postnuptial agreement may be an option to consider. It's essential to understand which laws are applicable and which courts potentially have jurisdiction over a divorce. This may sound trivial, but you run the forum shopping risk with a global lifestyle and international assets. Your spouse may try to bring you in front of the most favorable judges to rule over a claim. Even if you created the family wealth and have asset protection tools in place, such a court might not uphold the expected wealth protection. Even if you are not married, the break-up of a relationship in some countries may still have financial consequences. Suppose the financial part cannot be managed upfront. In that case, you may want to consider any other non-financial element of a marriage or relationship that can be amicably clarified if things get wrong. Again, each jurisdiction has different rules, and you will need specialist advice for your situation. With clear agreements and expectations set out, storms will be more comfortable to navigate for all involved parties.
The next step is to plan for the relationships of successive generations. A family may develop principles for relationships and the associated agreements as part of their governance framework and family wealth plan. These demanding conversations should happen early. In particular, for a family business, succession planning needs to consider the next generation's partners' rights and entitlement. You may consider transferring a family business to a trust or foundation rather than directly to the next generation if there are signs of risks that cannot be limited. There are many other scenarios such as second marriages, children who may not be happy with your last will, a conflict between family members, and many more that may put the family wealth at risk. You cannot plan for all of them. You can still start somewhere and let the conversation evolve into an ongoing process to strengthen risk management with wealth structuring and family governance. Wealth protection awareness within the family contributes to results and starts with the conversation about expectations and risks.
International wealth owners are affected by political risks at different levels. It can arise from citizenship or residence, the location of investments, and the jurisdiction of wealth planning vehicles. Political populism and multipolar perceptions of wealth owners are not exclusively reserved for emerging countries. In its current Rule of Law Report, the European Commission identified significant challenges regarding judicial independence and corruption prevention in some member states. Such a combination can be a substantial risk for wealth owners who are not part of a governments' political camp and may lead to relocating family businesses and wealth or even the family itself.
Even if you live in a safe and stable country, the hunt for yields and the trend towards direct investments may expose your foreign investments to political risks. Most OECD countries and many non-OECD countries provide investment guarantees and have entered into bilateral investment protection agreements to prevent non-commercial risks. Still, depending on where you invest, political risk insurance may be an option to consider in light of potential war damages, currency inconvertibility, or remittance restrictions.
Finally, wealth planning and holding vehicles should be assessed through the same lens. Diversification is vital to manage political risk exposure. A balanced mix of wealth planning tools and jurisdictions may also be beneficial to hedge your wealth against other risks we discuss in this post.
Your wealth planning should include cybersecurity risks. According to the 2019 UBS Global Family Office Report, 20% of the global family offices suffered a cyber attack. You don't need to own a family office to be exposed to phishing, malware, social engineering, or ransomware. Your wealth may attract cybercriminals irrespective of the organizational setup, and extorsion or fraud can put it at severe risk.
The first step in wealth planning and risk management is awareness. A professional audit will reveal potential targets and is not limited to technology but should include assets and behaviors in light of potential cyber-enabled physical threats to your wealth. If you share your life on social media, that's an ideal source for criminals to gather information about your homes, vehicles, and other valuables. With a classification of digital assets and sensitive data according to their importance, specialists can evaluate a backup and recovery solution.
The next step is preparedness due to a technical protection system, incident management plans, and user education and awareness throughout the family. Lastly, ongoing monitoring ensures the resilience of the framework and identifies new or emerging threats. Although not a mainstream product, personal cyber insurance, including specialist assistance coverage, can complete a robust defense framework.
Human-centered wealth planning has one objective: putting people first. A variety of tools assist in designing an individualized family wealth plan rather than an aggregation of legal arrangements following a narrow wealth planning definition. Some of the above can be uncomfortable, reveal vulnerability, and you may even experience tension. However, it's a robust process towards unity, connection, shared purpose, and motivation. Your family members can add stunning views and inspirations, and the dialog will foster an environment of family bonding, ease, and trust. External advisors can assist and guide a family by designing and delivering human-centered wealth plans that empower family members across and over generations.
As we said, you are original, and each situation is unique and deserves a tailored approach. Shared values, vision, mission, and a family's purpose of wealth will not derive from family offices, trusts, life insurance policies, and corporate structures but an open heart and mind in designing wealth plans with your and your loved ones' well-being and peace of mind. Your family's collective objectives, roles, responsibilities, and governance will then follow genuinely and guide your family for the future to come.
You cannot control every potential risk in wealth planning, but you can prepare for many events by considering them in defining and implementing your strategy to protect family wealth. Some topics are uncomfortable, and other risks may currently seem far away. However, we have come across all of the above and many more we plan to cover in future posts. We want to stress that when it comes to asset protection, simplification is often the solution. Start with what's most apparent to you and the people surrounding you. An initial assessment leads to understanding and a decision basis for further analyses. Where needed, get specialist advice to define risk mitigation measures and communicate outcomes with your family to raise awareness and ensure resilience. Finally, regular reviews and stress testing ensure that your family wealth plan protects and preserves wealth over generations.