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Preparing for the
‘great wealth transfer’
A significant proportion of global wealth is owned by individuals who are close to or older than 60 years – it’s been estimated that more than US$30 trillion will be transferred from one generation to the next over the next few decades. There’s a saying in investment circles, however, that ‘the first generation makes the money, the second spends it, and the third wastes it’. How can wealthy families prepare for the smooth transfer of assets to their children to ensure their legacy continues for generations to come?
The old adage has certainly been borne out by recent research: survey results quoted in a 2013 Wall Street Journal article indicate that 70% of affluent families will lose their wealth by the second generation and 90% by the third. The 2016 Knight Frank Wealth Report found that family wealth is now typically squandered by the end of the second generation.
How and why does this happen? In our experience, there are several reasons why following generations end up failing as custodians or stewards of family wealth:
In our view, there are three key ways wealthy families can prepare to transfer wealth to the next generation:
Ensure everyone in the family has some level of financial education. Family members need to:
Engage all generations in a family indaba or gathering, in order to:
Put a support system of trusted advisers in place, and involve members of the next generation in meetings with the family advisers.
In practice, once they are comfortable with the idea of wealth management and investment concepts, members of the younger generation often bring new viewpoints, ideas and renewed energy to the table in discussions about family wealth.
It’s crucial that all members of the family work as a team and focus on a realistic, understandable goal that capitalises on the strength of the sum of the individual members.
Do you need assistance or more information on implementing any of the steps set out above? Call Marteen Michau on 011 778 6656 for an appointment or email marteenm@privatewealth.sanlam.co.za
The formation and registration of trusts, and the provision of independent trusteeships – both local and offshore.
The creation of BEE, charitable, special and Shariah trusts compliant with regulatory and legislative requirements.
The administration of deceased estates in South Africa and abroad.
Advice on complex structures, asset restructuring and bequests in foreign jurisdictions.
Advice on emigration and immigration, foreign earnings and the application of any double taxation agreements.
Updating trust deeds to ensure they’re in line with the latest changes in the trust environment.
Updating and/or drafting of wills dealing with South African and/or foreign assets.
Advice on the establishment and management of charitable organisations, their tax status and tax deductible donations.
Advice on the potential tax consequences and reporting obligations if you hold a US passport or green card, or if you have children living in the US.
Guidance on the financial implications of life-changing events, such as getting married, divorce or the birth of a child.
Expert advice is crucial in dealing with cross-border estate and tax planning.
Stanley Broun has spent 10 years in Fiduciary And Tax.
Have a question for Stanley?
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All reasonable steps have been taken to ensure that the information on this website is accurate. The information does not constitute financial advice as contemplated in terms of FAIS. Professional financial advice should always be sought before making an investment decision.
INVESTMENT PORTFOLIOS
Participation in Sanlam Private Wealth Portfolios is a medium to long-term investment. The value of portfolios is subject to fluctuation and past performance is not a guide to future performance. Calculations are based on a lump sum investment with gross income reinvested on the ex-dividend date. The net of fee calculation assumes a 1.15% annual management charge and total trading costs of 1% (both inclusive of VAT) on the actual portfolio turnover. Actual investment performance will differ based on the fees applicable, the actual investment date and the date of reinvestment of income. A schedule of fees and maximum commissions is available upon request.
COLLECTIVE INVESTMENT SCHEMES
The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium to long-term investments. Past performance is not a guide to future performance, and the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available on request from the manager, Sanlam Collective Investments (RF) Pty Ltd, a registered and approved manager in collective investment schemes in securities (‘Manager’).
Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in a portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of a portfolio and an investor will differ depending on the initial fees applicable, the actual investment date, date of reinvestment of income and dividend withholding tax. Forward pricing is used.
The performance of portfolios depend on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-dividend date. Portfolios may invest in other unit trusts which levy their own fees and may result is a higher fee structure for Sanlam Private Wealth’s portfolios.
All portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No. 45 of 2002. Funds may from time to time invest in foreign countries and may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The manager may close any portfolio to new investors in order to ensure efficient management according to applicable mandates.
The management of portfolios may be outsourced to financial services providers authorised in terms of FAIS.
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