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LPH Financial Services noted that family businesses in the Middle East are at risk of losing trillions of dollars in wealth and assets due to a lack of estate or succession planning.
Leena Parwani, founder and CEO of LPH Financial Services, said: “After the death of the founder of the company, as the second and third generation representatives of these families, a large part of the wealth may be wiped out. The business owned may not have the same Entrepreneurial passion.Many of them splurge on their lavish and sometimes wild lifestyles.
“It is therefore important for founders, chairmen and leaders of family businesses to start estate planning to protect their hard-earned wealth.”
estate planning
Estate planning is crucial before a person dies. When a person dies, the wealth and property of the family pass to the chosen heirs or next of kin, or to a person or charity named in a will.
If a business owner does not have a plan for his estate, its management may be against your will once it is inherited. Estate planning is important for all family businesses, large and small. For a small business or farm, or any other asset that requires ongoing maintenance, estate planning is often an important financial tool.
The report further noted that millionaires in the Middle East grew by 5.5%, while their wealth increased by 6.3%, mainly due to a recovery in technology and oil prices. The income of the richest rose from 7.8% to 8% thanks to the stock market’s growth.
generational transition
LPF said that while most Emirati family businesses that started in the 1960s to 1980s have been successfully passed on to the next generation, many of them may not make a successful third-generation transition.
According to Investopia, estate planning is a financial strategy that allows people to bequeath assets to a loved one or next of kin after death. These affairs are usually planned and organized by financial advisors.
According to the World Wealth Report 2021 by Capgemini Research, the Middle East’s High Net Worth Individual (HNWI) population (i.e. those with more than $1 million) grows 6.8% to 800,000, while their wealth soars into 2020 It will grow 10.7% annually to $3.2 trillion. The wealth of these wealthy people – mainly belonging to businessmen – is at risk due to a lack of estate planning.
lack of corporate structure
Due to the lack of proper corporate structure and corporate governance, most family businesses cannot maintain the same level of growth in the next generation as before. Many family business founders die without a clear succession plan, will or estate plan, leading to legal disputes between successors over their perceived share of the family wealth.
The Covid-19 pandemic has created an urge in most family businesses to do some kind of estate planning or succession planning to protect family wealth from pillage.
“We are seeing an increasing number of clients interested not only in wills, but also in mental capacity planning through a Lasting Power of Attorney (EPA) or a Lasting Power of Attorney (LPA). The third type of planning, known as “lifetime planning”, is also gaining popularity.
“While wills only take effect upon the individual’s death, and EPA/LPA only when they are mentally incapacitated, other types of plans can be initiated during their lifetime. More and more clients are placing trusts, partnerships and Family investment firms are seen as a way to cede value, control and/or influence to the next generation during their lifetime, or as a way to introduce family wealth to the next generation. Continuity.”
economic climate
For some, the current economic environment has created an opportunity for wealth transfer, with the pandemic directly leading to lower asset valuations and lower effective transfer tax rates.
Some clients are not ready to hand over control to a trustee. As an alternative structure, a family limited partnership (FLP) or a family investment company (FIC) could be considered, the HSBC report said.
“FLPs and FICs can still help coordinate and protect assets, but allow senior family members to retain greater control over assets while transferring wealth to younger generations in a more progressive manner. FIC is a private company whose shareholders and directors are Is a family member. Shares are usually divided into different levels of control with different levels. For example: parents have voting shares, while children and grandchildren have economic rights or dividend rights but no voting rights.”
Most millionaires
Saudi Arabia has the most millionaires in the Middle East, with more than 224,000 millionaires living in the country. According to the World Wealth Report 2022 published by the Capgemini Financial Services Institute, Saudi Arabia ranks 17th in the world for the number of millionaires. Compared to 2020, the number of millionaires in Saudi Arabia will increase by 6.7% in 2021, from 210,000 to 224,000.
It was followed by Kuwait, where the number of millionaires increased from 205,000 to 217,000, a 6.1% increase. Kuwait ranks 18th in the world, after Saudi Arabia.
The UAE is home to 92,600 US$ millionaires; 4,000 multi-millionaires worth over US$10 million; 251 millionaires (over US$100 million) and 14 US$ billionaires, according to the latest Henry Global Citizenship Report. arab trade news agency
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