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Family Office: Wealth Preservation Strategies

Family Office: Wealth Preservation Strategies

“I don’t see any problem owning my wealth in my personal name” said Robert (not his real name) during one of our interviews with him. We pondered and replied “For many obvious reasons, there are certainly nothing wrong with owning our wealth in our personal name. However, since we are not immortal, are you okay upon your demise, regardless of whether you have a Will or not, all assets under your name will be frozen and become an Estate? It will take your family approximately 2 to 5 years (as the case may be) to get the assets changed to their names. Legal hassles, family anxiety and Estate Administration costs ranging of 6% to 10% of the gross Estates are some common issues of a High Complex Wealth Individual.” “To add more salt to the wound, the first person who has the first claim on the deceased Estate will be the final expenses like funeral and medical providers. The second is the Administrator or Executor of the Estate, who according to the Law of Distribution, can claim up to 5% of the gross estates. The third person will be the Inland Revenue Bureau (IRB) where taxable income at year of death and any tax liabilities will have to be paid up by the Estate. The fourth will be the Creditors, be it business or individual creditors. Lastly the residue will be payable to your beloved family members. Loss of confidentiality and dispute among beneficiaries over the Estate are some common issues in many high complex wealth individuals. So Robert, if you are okay we are okay too.” As usual, our client, Robert was astonished over our statement.

Most Malaysians’ wealth are owned either in their own name or jointly owned with their spouses. Such typical arrangement is called “Holding Structure” of an individual. Sad to say massive wealth on such holding structure will be frozen, subject to contest, loss of confidentiality and will subject to shrinkage due to Estate Administration as it become an Estate upon the demise of the owner.

The article in the New Sunday Times dated 21st January 2007 claim that there are RM40 billion of unsettled Estate in Malaysia. Shockingly, one can imagine the rising opportunity cost of such huge amount when it is not put to good use. The famous opera star singer Luciano Pavarotti died with shocking £ 12 million (RM 90 million) debts in September 2007 and there was speculation of rift between his wife and his three daughters from the first marriage over his Will. Another complex issue involved James Brown, the soul singer where five of his children are contesting the validity of his Will. The children were largely left out of the soul singer’s money to trusts that were set up to educate Brown’s grandchildren and the needy kids. As in the case of the late Hong Kong tycoon Nina Wang’s multi billion dollar fortune, it kicked off a legal battle over her estate. Apparently, her Feng Shui master maintained that he is the sole beneficiary of Wang’s fortune estimated at USD 4.2 billion according to a Will written in 2006. On the other hand, Wang’s family issued a writ of summon in April 2007, claiming her 2002 Will, which reportedly said that the majority of her assets should be used for charitable purposes, is final and valid.

Malaysians probably know what they want to do with their assets during their lifetime. Providing the best for their family livelihood, planning for children education, investment, philanthropic activities and etc are some common wealth management ideas. What about wealth management after one’s death? What more when it comes to preserving your hard-earned wealth? The process of planning involves dollars, lots of dollars, to create and maintain lifestyles for you, your family and your future generations while you are alive and for your loved ones after your death. Often a sacrifice is required – for example, the sacrifice of your dollars to purchase life insurance to fuel your estate, investment manager to grow your wealth and most importantly a financial planner who specializes in preservation planning for your wealth by architecting the preservation structure according to your goals and objectives.

Don’t they want these goals to be carried on after their lifetime? If the answer is yes, the most common possible structure that was used in developed countries for Preservation Strategy is via a Family Office and /or a Family Trust.

Since most Wealth Preservation strategy extend beyond the lifetime of an individual, it is advisable to select and identify the correct holding structure. It is just like when you decide to renovate your house, you will not compromise on the quality and durability of the materials used in the renovation. Getting an experience and professional contractor will be your first choice too. Close supervision, monitoring the progress and ensuring quality work done are part of your concerns of getting the renovation delivered as scheduled.

A Family Office is dedicated to providing a wealth management service in the fullest sense. Being a normal Sendirian Berhad type of company set up, its aim is to preserve and grow family wealth for future generations. The Family Office achieves this through a combination of successful investment strategies, careful tax planning, strategic planning for the continuity or transfer of the family business, ensuring a planned transfer of wealth to succeeding generations, and providing for the personal needs of the family.

“Family” means for the benefits of family and future generations whereas “Office” means a registered entity known as a company. Similar to a usual company set up, Family Office has perpetual existence (unless they are voluntarily or forced to wind up), accountability, statutory requirement and compliance. Perpetual existence simply means the assets that were placed in the Family Office will not become an Estate even on the demise of the owner. Hence, no Estate Administration or legal hassles are needed and thus assets will not be frozen.

Family Office – Wealth Preservation Strategies

A Family Office has two main objectives. 

1) Preserving the Family’s assets. This objective is achieved by selecting and setting up appropriate legal structures for maintaining and transferring ownership of the assets taking into account, the tax considerations. Many families also form family councils to agree on family policies on succession planning and family “governance”.

2) Developing the Family's assets. The Family Office’s second task is to grow the family’s assets. The starting-point is to understand the family’s overall investment objectives and determine the appropriate strategic allocation of assets to achieve those objectives. The next stage is the actual management itself - either directly by the Family Office, if it possesses the necessary technical expertise, or by delegating to specialized managers. The task of the Family Office team is to track down the best managers globally and to monitor the implementation of their management mandate.


A wide range of services for families

We select, co-ordinate and oversee a wide range of activities and services from our comprehensive global management resources. We make it our business to understand your objectives and, together with you, decide on how best to achieve them. Above all, we want to share the benefit of our experience with you to avoid unnecessary costly mistakes. Once a plan of action has been drawn up, we take care of the rest. We send you personalized reports on a regular basis, keeping you and your family updated on developments. We also review the structures in place to ensure that they meet your objectives at all times.

 

Our philosophy

 

  1. To enhance client’s wealth by providing and coordinating top class professional services proactively.
  2. By relieving our clients of the strains and pressures of managing and preserving family wealth, we aim to help them to achieve an absolute peace of mind.

 

We believe that A.D.’s Family Office is well suited to serving your requirements if you have a sizable, broadly diversified private fortune or:

  • are the owner of a family business (private or public).
  • have a complex family situation.
  • have an international family with multiple residences.
  • require a highly personalized and proactive service.

  

In our next newsletter, we will discuss about the mechanics of setting up a Family Office and its challenges in Malaysia’s jurisdiction.


If it is worth striving for, it is worth preserving

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