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Succession planning – an eye to the future

Careful succession and tax planning allows people to pass on more of their wealth to future generations and there are myriad ways of doing this, writes Christian Brown.

Hong Kong, 24 January 2019: Generally speaking, people undertake lifetime and succession or tax planning to try to ensure that their wealth passes in accordance with their wishes, to protect their asset base, keep the family business in the family, and to try to retain a degree of control of wealth after they are gone.

The idea is to ensure that, on death, funds are immediately available for the surviving beneficiaries and to mitigate or avoid entirely the event of estate duty or inheritance tax. Frequently, this involves giving away ownership of one’s assets (which is not necessarily an easy thing to do), while at the same time keeping some control. Methods employed include:

  • Write a Will and suitable letter of wishes to the executors detailing how each family member is to benefit from the estate and in what circumstances;
  • Severance of joint tenancy over assets held jointly to leave the share under a Will and transfer of assets among spouses to benefit from estate duty or inheritance tax exemptions;
  • Make lifetime gifts to the next generation or perhaps to charity;
  • Use of Bare Trust to pass assets to children when they are under legal age, as part of an overall plan to reduce exposure to estate duty, advancing the gift where income from the asset or use and enjoyment is not required;
  • Place ownership of assets within a corporate entity, for instance real property, investment portfolios or private equity investments which can save on probate issues and consolidate family wealth into a form which can be easily divided into shares;
  • Give assets away to a Discretionary Trust for the benefit of the family or confer a specific interest to specific people such as an immediate right to income or from a specified age appointing a professional trustee;
  • Establish a family Private Trust Company owned by a family Foundation or Purpose Trust, to own family wealth which the family can manage with the assistance of an independent professional trustee;
  • If charitable giving is desired one can set up a Purpose Trust or Charitable Foundation for philanthropic activity;
  • Where the benefits of a Trust are desired but not the idea of giving up control, consider the use of a Foundation, or if something more recognisable in civil law jurisdictions is required which has its own legal personality, is registered, and operates in some ways similar to a company, where the Founder can be on the council of members.
  • Expatriates who have settled in a new country might have established a new Domicile of Choice there, and can take steps to benefit from the planning opportunities available to someone with a foreign domicile from an inheritance tax perspective, such as drafting a statutory declaration as to their domicile;
  • Alternatively, assets may be gifted to a foreign domiciled spouse to take them outside the reach of the owner’s domestic tax authorities.
  • Establish a Pilot Trust with a nominal initial fund to be the nominated beneficiary of death in service benefit or pension scheme death benefits with a suitable letter of wishes, to give flexibility over death benefits among the surviving spouse and children or other beneficiaries, rather than simple nomination of spouse. Using a trust enables the founder to have more say in exactly how the fund is distributed, spent or applied for the benefit of the beneficiaries.
  • Take advantage of the low value of assets currently by settling them on trust or giving them away, especially those which will appreciate in value over time.

How an individual’s estate will be taxed – if at all – on death depends on where they are domiciled, in some circumstances where they are resident for tax purposes and indeed where their assets are situated around the world. But there are many opportunities to arrange one’s affairs to avoid or mitigate this.

The ability to be able to put in place provisions to protect wealth now and provide for future generations or other intended beneficiaries in stages or under particular circumstances by the use of a Will, Trusts, Foundations, Pensions, Companies or simple asset transfers is something that should not be overlooked. What is listed above amounts to just a short summary of the possibilities – and no one should act on it without first seeking competent professional advice.

Christian Brown is a Chartered Tax Adviser, Taxation Technician, Trust & Estate Practitioner and Director of Lutea (Hong Kong). The Lutea Group provides trustee and related advisory services to families and businesses across the globe. The firm has offices in Jersey, Hong Kong, Anguilla and the UK. For more information visit