How to preserve your wealth over three generations

So, how do we avoid the trap of “富不过三代”?

1. Minimise risks involved in wealth transition

Wealth transition refers to the passing down of wealth (inheritance, property, trusts, etc.) from one generation to the next. A fundamental aspect of wealth transition is to preserve the wealth that can be smoothly handed down to the next generation.

It is a process that will have its fair share of risks if not planned for properly. What needs to be considered in legacy planning is not just the estate planning instruments (e.g. wills, trusts) but also the execution and timing of their implementation. A successful intergenerational wealth inheritance strategy may take decades to bear fruit, but requires thorough advance planning, as well as the adaptability to modify the plan during its implementation, if needed. Consider seeking professional advice and expertise to assist with the process.

2. Plan for unexpected death and unforeseen circumstances

Unexpected death from a global pandemic, natural disaster, or even a critical illness diagnosis – nobody wants to dwell on these matters, but their effects may have a devastating impact on your family’s finances and future. It is crucial to prepare ourselves for the possibility of such circumstances and make the necessary arrangements for wealth distribution in the event of their occurrence.

While one is still alive and of sound mind, these decisions related to succession planning should be considered and discussed with the family to minimise disputes later on, and to ensure a legacy for your dependents and future generations to come.

Ensure that your estate planning instruments such as your wills, LPAs, and life insurance beneficiaries are up to date, and review them frequently to make sure that they reflect your family’s current values and priorities.

3. Consider the possibility of marital and familial relationship breakdown

Just as much as the possibility of calamity, nobody wants to believe that their marriage would fall apart. However, the possibility of divorce should be taken just as seriously as unexpected death. In 2021, while 28,300 couples got married, 7,890 couples dissolved their marriages; a 13.3% increase from 2020, according to a report by CNA.

Marriage is one of the most legally significant actions most people will take in their lives, with rippling effects throughout one’s financial and legal rights. Improper or inadequate financial planning during – and even before – marriage can cause many painful and difficult disputes should the couple choose to separate.

You should strongly consider getting a prenuptial agreement (a.k.a prenup), which is a contract entered between the couple before their marriage that governs the actions taken should the couple divorce in the future. A prenup can protect the financial assets and liabilities of each individual, and provide certainty by clearly setting out the financial arrangements and understandings prior to marriage and in the event of a divorce. In Singapore, there has been a rise in uptake of prenups in recent years (CNA).

Even without a prenup, actions can be taken during the marriage to protect financial assets from marital disputes. Consider speaking to a professional on how best to safeguard your family against the financial consequences of a possible divorce.

4. Manage internal and external factors that may affect the family business

If you own a family business that you wish to pass down to the next generation, then there is much more you need to consider besides estate planning. Management training for family members is vital so that your future successors will have the necessary education and skills to take over the business and continue to safeguard it from external threats.

Internal strife within the family can also disrupt the running and operations of the business. In times like this, it is good to have objective rules and protocols in place so that the business can continue to run while the conflict in the family is being addressed.

Ultimately, thorough and considered planning is key

At the end of the day, you cannot control what fate will befall you and your family. But what you can control is how well you plan for the unexpected that can cushion the impact of tough blows.

To protect your family and dependents, you need to make sure that you have a solid financial plan in place. Make full use of all the financial instruments you have at your disposal, such as life insurance, wills, prenups, and seek professional advice where necessary.

As another Chinese proverb says, “前人栽树，后人乘凉” (The predecessors planted trees, and the later generations enjoyed the shade). To hopefully preserve your wealth over three generations, now is the best time to sow the seeds of good financial planning for your family.

We can help to protect you and your loved ones’ future from unexpected events such as death and critical illness. Book a complimentary financial planning session with our representatives today to find out more.