The great wealth transfer: Middle Eastern fortunes in jeopardy
The last two decades have seen an explosion of wealth across the Middle East. In Saudi Arabia alone, the number of ultra-high-net-worth individuals (UHNWIs) – those with assets worth at least $30 million – grew by an astonishing 227 per cent over the last five years, according to Knight Frank.
Yet the next two decades will […]
Simon Lo is the group executive officer, international, Charles Monat Associates
The last two decades have seen an explosion of wealth across the Middle East. In Saudi Arabia alone, the number of ultra-high-net-worth individuals (UHNWIs) – those with assets worth at least $30 million – grew by an astonishing 227 per cent over the last five years, according to Knight Frank.
Yet the next two decades will be the most defining for the region’s affluent. A titanic shift of wealth between generations is underway, with trillions of dollars set to change hands. This great wealth transfer has already begun and will have far reaching implications.
Concerning though is the fact that the vast majority of Middle Eastern families are chronically underprepared for this event, with just 25 percent of family businesses in the GCC having any kind of wealth transfer strategy in place. Unless addressed, the financial consequences will be devastating, and billions of dollars could be lost.
But how best to build a plan that ensures you pass on the family torch with the flame still blazing? Like building anything, you begin with a solid foundation. And when it comes to preserving wealth and protecting legacy, there is no stronger foundation than life insurance.
The pitfalls of cross-border wealth
The great wealth transfer may hit wealthy Arab families particularly hard because many own property and other assets all over the globe. In the UAE, for example, the cross-border share of total wealth was 31.8 percent in 2018, significantly higher than the global share of 4.2 percent.
This cross-border wealth leaves families exposed to significant unexpected losses. If, for instance, you owned $20 million worth of assets in London and were to unexpectedly pass away, the entire balance could be subject to estate taxes if you’re not prepared. In London, this would be an eye-watering 40 percent, or $8 million. However, with proper planning and the right life insurance policy, much more of the estate could be passed on tax-free, potentially saving millions of dollars.
The elephant in the room
A failure to plan can also lead to intense family conflicts. Family businesses dominate the region, but despite entire legacies at stake, succession planning is often the elephant in the room. Families understandably don’t want to spark disagreements, and many find it difficult to even raise the subject. But failing to plan now is likely to intensify these conflicts later.
When it comes to preserving wealth and protecting legacy, there is no stronger foundation than life insurance.
Consider this common recipe for a family feud: Seven members inherit an equal share of a business, but four want to sell, and the other three wish to retain ownership. Life insurance allows the three family members with an interest in maintaining the business to inherit the asset, while the other four members are provided with an equivalent cash value from the life insurance policy.
A Societal Dilemma
Few will sympathise with a dilemma that impacts the wealthiest fraction of society, but it’s important to consider the consequences. A rapid disintegration of wealth isn’t in anyone’s interest. It would cause significant economic disruption that would reverberate across the region and likely result in major job loss, a reduction in important philanthropic endeavours and an evaporation of much needed business investment.
There are parallels with the Great Financial Crisis of 2008 – while wealthy Wall Street bankers were the first to be struck, it ultimately impacted millions of ordinary workers and devastated societies all over the globe, some of which still haven’t recovered to this day.
In this sense, wealth planning isn’t simply a selfish undertaking of society’s elite. High-net-worth-individuals must look beyond their immediate needs. They have a moral obligation to protect future generations against the unintended consequences of the great wealth transfer. That is why placing assets within life insurance should be second nature for every HNWI and UHNWI.
In our industry, there is a saying: The first generation makes it, the second generation spends it, and the third generation blows it. Without calculated, precise and strategic planning, however, the second generation may never even get the opportunity to see it.
Simon Lo is the group executive officer, international, Charles Monat Associates
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The great wealth transfer: Middle Eastern fortunes in jeopardy
The last two decades have seen an explosion of wealth across the Middle East. In Saudi Arabia alone, the number of ultra-high-net-worth individuals (UHNWIs) – those with assets worth at least $30 million – grew by an astonishing 227 per cent over the last five years, according to Knight Frank.
Yet the next two decades will […]
The last two decades have seen an explosion of wealth across the Middle East. In Saudi Arabia alone, the number of ultra-high-net-worth individuals (UHNWIs) – those with assets worth at least $30 million – grew by an astonishing 227 per cent over the last five years, according to Knight Frank.
Yet the next two decades will be the most defining for the region’s affluent. A titanic shift of wealth between generations is underway, with trillions of dollars set to change hands. This great wealth transfer has already begun and will have far reaching implications.
Concerning though is the fact that the vast majority of Middle Eastern families are chronically underprepared for this event, with just 25 percent of family businesses in the GCC having any kind of wealth transfer strategy in place. Unless addressed, the financial consequences will be devastating, and billions of dollars could be lost.
But how best to build a plan that ensures you pass on the family torch with the flame still blazing? Like building anything, you begin with a solid foundation. And when it comes to preserving wealth and protecting legacy, there is no stronger foundation than life insurance.
The pitfalls of cross-border wealth
The great wealth transfer may hit wealthy Arab families particularly hard because many own property and other assets all over the globe. In the UAE, for example, the cross-border share of total wealth was 31.8 percent in 2018, significantly higher than the global share of 4.2 percent.
This cross-border wealth leaves families exposed to significant unexpected losses. If, for instance, you owned $20 million worth of assets in London and were to unexpectedly pass away, the entire balance could be subject to estate taxes if you’re not prepared. In London, this would be an eye-watering 40 percent, or $8 million. However, with proper planning and the right life insurance policy, much more of the estate could be passed on tax-free, potentially saving millions of dollars.
The elephant in the room
A failure to plan can also lead to intense family conflicts. Family businesses dominate the region, but despite entire legacies at stake, succession planning is often the elephant in the room. Families understandably don’t want to spark disagreements, and many find it difficult to even raise the subject. But failing to plan now is likely to intensify these conflicts later.
Consider this common recipe for a family feud: Seven members inherit an equal share of a business, but four want to sell, and the other three wish to retain ownership. Life insurance allows the three family members with an interest in maintaining the business to inherit the asset, while the other four members are provided with an equivalent cash value from the life insurance policy.
A Societal Dilemma
Few will sympathise with a dilemma that impacts the wealthiest fraction of society, but it’s important to consider the consequences. A rapid disintegration of wealth isn’t in anyone’s interest. It would cause significant economic disruption that would reverberate across the region and likely result in major job loss, a reduction in important philanthropic endeavours and an evaporation of much needed business investment.
There are parallels with the Great Financial Crisis of 2008 – while wealthy Wall Street bankers were the first to be struck, it ultimately impacted millions of ordinary workers and devastated societies all over the globe, some of which still haven’t recovered to this day.
In this sense, wealth planning isn’t simply a selfish undertaking of society’s elite. High-net-worth-individuals must look beyond their immediate needs. They have a moral obligation to protect future generations against the unintended consequences of the great wealth transfer. That is why placing assets within life insurance should be second nature for every HNWI and UHNWI.
In our industry, there is a saying: The first generation makes it, the second generation spends it, and the third generation blows it. Without calculated, precise and strategic planning, however, the second generation may never even get the opportunity to see it.
Simon Lo is the group executive officer, international, Charles Monat Associates
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