Legacy Planning: Why is it so important?

Have you ever thought about your legacy plan? It’s a story we’ve all seen in the movies: Someone builds a business from nothing and grows it into a multi-million empire. The story usually ends happily ever after, with the family enjoying the wealth for generations to come.

Although, in reality, the story can turn happily ever after into family turmoil. Families fight for their slice of the empire after the parents’ death, and sadly this commonly leads to a break up of a business and the selling of the bonds that the family once upon a time held together.

With insufficient legacy preparation and the absence of a detailed plan to prepare for the time in which you pass away, you could be leaving behind one chaotic situation.

Why do I need a Legacy Plan?

Proper financial planning is needed, especially here in the Middle East, where most wealth has been generated in the masses over the past 40-50 years.

Private wealth in Dubai is growing rapidly. The Boston Consulting Group has predicted that private wealth in the Middle East will have grown by $4 trillion since 2016 by the end of 2021.

Retirement seems an alien concept in some parts of the Middle East, and founders, in particular, are working well into their 80s. Although the problems then arise when the founder passes, especially if clear plans have not been laid out for the next generation to take over.

This is by no means a problem only here in the Middle East, and many family-owned businesses worldwide also encounter these issues.

The Family Firm Institute reported that worldwide, only 30% of family-owned businesses survive the second generation. With 12% reaching third generation and only a tiny 3% reaching fourth generation or further.

Although the situation here in the Middle East is heightened by a few factors unique to our end of the world;

The first one is that there are no followed processes to pass on wealth, unlike in Europe or the US. In the west, wills are an integral part of the legal system.

Here, we do have the Waqf System, led by Islamic law, and involves donating assets for religious use. Although the use of a will is much less practised.

Secondly, for many families, culturally, talking about death is taboo. This can add to the problem. If you do not talk about death, you simply cannot prepare for it.

Lastly, polygamy – to have more than one wife. In cases where there are multiple wives, families can be torn, with everyone fighting for the right to inherit the business.

This is a complicated situation, which can all be avoided with a professionally prepared Legacy Plan.

Planning your legacy

This does not mean happy endings do not exist. Although a legacy plan should be considered essential and done as early as possible.

There are three directions for businesses to take to preserve their legacy.

Firstly, you can hand over the business to the next generation. Although if this is the route you do take, it is important to get the next generation involved as early as possible. Teach them everything you know.

You should set clear instructions for who gets what and be transparent about this. Firstly, ensure everyone is on board, and ensure there are no shocks upon your passing.

Secondly, you can allow your family to sell the business and split assets between your family and the next generation. Although does it sit comfortably with you to throw away a lifetime of hard work?

To some families, this can be a logical choice, especially if your family situation is complex or there is no next generation.

Lastly, it would be for your family to continue ownership of the business but employ professional teams to run the operations.

This option allows wealth to reside within the family, although let’s go of day-in-day-out control. Profits would allow your family to continue to grow wealth while preserving the legacy of you, the founder, and your family.

These are just a few options, allowing one generation to pass wealth on to the next. Every family is different, and there is no ‘one fits all’ solution.

Ross Whatnall

Ross Whatnall is CEO and co-founder of GSB and a highly experienced private client director. Ross holds many insurance and investment management qualifications, including CISI, CII, LIBF and CFA. He started his career in private banking with HSBC in the UK before moving to the UAE in 2013 to focus on serving his private clients.


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