What is meant by Family Wealth Services?

by | Aug 28, 2020 | Accounting Firm Services

Family Wealth refers to inter-generation wealth (or ‘generational family wealth’). It’s the financial legacy you’ve been left by your parents, that may have been first generated by their parents before them, or the financial legacy you’ll leave your children and grandchildren. If this sounds like description of those people (you know – the ones with beach homes and offshore investments) it’s because it is a description of them. But that can be you and your family too.

The fundamental aspects to protecting and growing family wealth are:

  • Family Trusts
  • Estate Planning
  • Family Wealth Assessments
  • Offshore Investments and Structuring

Family Trusts

There are several ways in which family trusts beat wills when it comes to leaving your wealth to your family – especially when it involves leaving that wealth for their children and protecting it – from a whole pack of potential hungry sharks.

True, it’s not as simple as it once was to protect assets from taxes and duties through family trusts. In particular, SARS is coming after offshore-based income – previously easy to avoid taxation on.

There’s also a global trend toward transparency and accountability in taxation of offshore capital and income that has countries around the globe collaborating to report on offshore assets and income.

However, rather than make obsolete the mechanisms and structures traditionally used to protect family wealth, this trend has made the correct structures and mechanisms more important. Family Trusts remain the best way to protect your family’s wealth over generations.

Our Family wealth services include correct set up and administration of your Trust. You can still leave your children, and their children, better off financially, with assets in place as foundations for future wealth generation. It’s all about asset protection through strategic planning on what type of family trust to set up, and who and how to administer and grow the wealth transferred to the trust.

 Protecting Family Assets with Family Trusts

Many people draft a Will, thinking that this is enough. A Will is essential, but it can leave the wealth and assets you have worked hard to accumulate vulnerable in several ways. This is what will happen to your assets when you die:

  • Your assets will be subject to Capital Gains tax and Estate duty
  • If you are in debt and have no debt protection – your assets are subject to claims by creditors. Add that to the Capital Gains tax and Estate duty, and your beneficiaries may inherit less than half of what you leave them – or even less!
  • Your beneficiaries may have to wait for up to 2 years for your Estate to be ‘wrapped up’. This is due to the court administered process is called probate.

You can lessen the impact of taxation and nullify the potential impact of debt and probate on your family wealth, by making a family trust a fundamental part of your Estate Planning, using Family wealth services experts.

Estate Planning

Family Trusts are essential components of Estate Planning!

This is especially true if you wish to do more than simply bequeath your wealth – for your beneficiaries to do with it whatever they want – including divide it up and possibly lose it all. Making a family trust part of your Estate, you leave your family a vehicle for:

Family Wealth Protection:

  • Besides the tax-related benefits of family trusts, trust have other benefits that help protect family wealth
  • Because you no longer legally own the assets in trust, those assets are safe from creditors
  • You don’t have to put everything you own in the trust. You can select assets
  • You can specific what will happen to the capital and/or proceeds in the trust deed , and who will have control of the trust. While specifics can be detailed in a will, trust deeds can be created to put controls in place across generations. They can override beneficiaries’ wills (helping to keep assets in the immediate family)
  • Special trusts can be created for minors or beneficiaries with special needs -without it going through a court (as with a Will)
  • Trust deed specifications can keep assets safe from irresponsible family members, their creditors and spouses
  • Assets held in trust are safe from legal claims against your estate – for any reason.
Growth of Family Wealth:

Assets that would otherwise have been divided up remain as capital that can be invested. ‘You need money to make money’ as the old adage goes…

The greater your capital, the greater the return on investments, and the trustees can maximise your inter-generational family wealth.

Some points about family trusts (and trusts in general):

  • You can’t just set up a family trust and leave it. A family trust needs to be managed as an investment vehicle to protect family assets and grow family wealth.
  • A trust must also be administered (and be subject to administration fees) to be a legal entity. It’s purpose may not be a straight-up tax dodge.

How Changes in Legislation affect Family Trusts

  • If there is one constant when it comes to National and International Regulations and legislation that effects your money, it’s that it changes. This can make certain current aspects to administering a family trust obsolete.
  • It also means that you need to be able to rely on trust administrators who are diligent in keeping up with legislation and can plan ahead to protect your family wealth. This is where an expert accounting and trust management team comes in.
  • Trusts need trustworthy and skilled executorship and administration.

You don’t have to wait to the last moment to start planning your estate. You can start now – with a family wealth assessment.

Family Wealth Assessments

The future of your family’s collective financial health and future should start with a consultation to assess your family wealth and what you can do with it.

You’ll need assistance in deciding whether or not a trust is in fact the best entity with which to protect your family wealth. There are a number of factors to consider.

Should a trust structure be the best option, you’ll assistance with deciding on (and then later implementing):

  • the kind of trust entity you should choose,
  • the trustees,
  • the structure of the trust and how it should be administered by the trustees, and,
  • how much control you (in the case of an inter-vivo trust) or individual family members (in the case of a testamentary trust) should have.

You can benefit from a family wealth assessment at any time – irrespective of the stage you are at in building wealth, your capital, investments and existing structures. The only prerequisite is that you have either have a ‘nest egg’ that you want to protect and grow, or a vision and desire for one.

The ‘vision for future wealth’ part is important: to attain and grow the family wealth you want – for you and your family members, current and future, you need to view your family finances the way you’d view (or do) your business finances. You need to manage them in a very similar way. To establish that vision and have it turn into reality, you need to do the groundwork, with professional advice, assistance and oversight. The process starts with a family wealth assessment of:

Where your family wealth is now – capital, income and liabilities
Where it can go in the future: how much do you want to / can you grow your family wealth?
How it can get there: This is the really important part! It can get there…there are lots of ways, but you’ll need ongoing family wealth assessments past the initial one, with investment and tax structuring.

Initial family wealth assessments:

Family wealth assessments start with establishing your net worth. This is a simple question – assets minus liabilities. At the initial stage, your assets are the total of a simple list, while your liabilities are current. However, assessment of the latter will highlight risks as future possible liabilities – and so your planning has begun.

Your initial assessment will also highlight where you can:

  • Micro-manage your family wealth – with budgeting toward the achievement of interim goals that further the achievement of wealth maximising goals.
  • Macro-manage your family wealth – through investments and the creation of an investment portfolio that can grow and diversify along with your savings and wealth. This may well include offshore investments.

The above will also help you plan for the future of your family wealth by highlight tax risk – current and what to look out for in the future. Tax planning is best done form the start. That way you can minimise tax liabilities within the confines of national and international tax regulations and laws. A good example of the value of this is the impact of the new tax regulations and international reporting structures affecting tax on offshore capital and income for South Africans. Those who stand to lose the most, are the ones who have profited from tax regulation and reporting ‘loopholes’ in the past. South Africans who have been compliant all along, have been able to bring their offshore holdings in line with new regulations, with little to no impact on past income. Tax regulations change all the time – and the best way to be prepared is to be tax compliant.

Ongoing assessments and family wealth management:

Ongoing family wealth assessments will involve:

  • Adjustments to your net worth balance sheet as you earn income
  • Assessment on the value of investments – with further investment of divestments as needed
  • Assessment and adjustments on short-term insurance, and life insurance/ assurance coverage for your family
  • Tax and other compliance assessments – yours and possibly also that of any business ventures (yours or others’) you have invested in
  • Review of family financial goals
  • Assessment of family trust structures, management and administration in light of changes in family structures, needs and goals
  • Assessment of family trust structures, management and administration in light of changes in tax regulations and economic factors – particularly in the case of offshore investments.

Offshore Structuring

 One of the ways in which a family trust can be used to build future family wealth is through strategic offshore investments.

If you cannot now escape paying tax on your offshore assets and income, lower tax rates in other countries remains an inventive to look at offshore investments. If your investment is through opening a business, not only can you possibly enjoy lower tax rates, but also tax incentives, lower operational costs, more stable economies, and the financial benefits of investing in a growing economy.

As long as you pay tax there, you will enjoy some degree of tax relief or even full exemption in South Africa.

However, offshore investing – whether as individual, as entrepreneur or through a family trust – is complicated. You’ll need assistance with your investment planning, management and professional, knowledgeable administration for a trust.

Putting your eggs into other (or even many) baskets is a good strategy for spreading and thinning risk to your family wealth capital and growing your family wealth. If it’s done right, that is: set up correctly, with the capacity in place to either move money or advise on moving money in response to global economic forces and changes in legislation – including tax legislation.

Offshore trusts are still a highly valuable vehicle for not only protecting family wealth, but also growing it considerably – without having to resort to trying to hide your money from SARS in an ‘offshore tax haven’.

There are certain essential aspects in offshore structuring – whether specifically as part of protecting family wealth, or simply to maximise your offshore investment and business interests. These require attention at the outset as well as at times of periodic review and adjustment, and include:

  • Tax Reduction: How to reduce tax payable in the host country and in South Africa
  • Asset Protection: Protecting your assets involves more the protecting their capital value from taxes. These risks include regulations involving personal liability – at home and abroad.
  • Operational Structuring: with the aim of simplifying incorporation, management, accounting and record-keeping, and so reducing the associated overhead costs.
  • Tax and Exchange Rules: Where can you incorporate (taking all of the above into account), while best maintaining confidentiality and anonymity? If you don’t want your offshore operations and investments to be part of the public record? Regulations must be taken not account when setting up a structure that would once have achieved. It is still possible but doing so must take into account tax transparency and exchange reporting rules – in both South Africa and the country where your offshore company is incorporated, and the countries your company does business.

If your offshore investments and business interests are not part of a plan or structuring for maximising and protecting family wealth, but it’s likely that they will be. Perhaps you don’t have family. Either you don’t have family yet, or you might still want to bequeath your wealth through a trust structure to a beneficiary organisation, individual or group of beneficiaries.

Irrespective of whether your start with offshore structuring or with setting up a family or other trust (the trust structure options remain the same) , you need to do it right, within the laws of the land – for host countries and as per SA tax and exchange regulations. This might lessen profit in the short term, but it will maximise wealth and secure family wealth. So that you can leave a healthy financial legacy for your family.

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Erasmus Pretorius

With over 23 years of unwavering expertise, I am a seasoned Chartered Accountant committed to financial excellence. My journey in the realm of finance has been marked by astute strategic insights, meticulous attention to detail, and an unyielding dedication to precision. Over the years, I’ve navigated the complexities of financial landscapes, providing invaluable counsel to diverse clients. My proficiency extends across auditing, taxation, and financial management, coupled with a profound understanding of regulatory frameworks. As a registered professional, I have consistently upheld the highest standards of integrity and ethics, earning a reputation as a trusted advisor in the dynamic world of finance.