A Strategic Approach to Family Office Wealth Preservation – Insuring the Key Persons
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A Strategic Approach to Family Office Wealth Preservation – Insuring the Key Persons
Setting up a family office requires strategic and careful planning to ensure a seamless transition of wealth and facilitate proper long-term management for high-net-worth individuals and families.
When setting up single or multi-family offices, it is crucial to insure key members. With over USD 15 trillion of wealth to be transferred and managed in the next decade1, preserving family legacy and growing wealth across multi-generations is a top priority for family offices around the world.
In the Middle East, there are currently around 70 family offices based in the UAE regions. Research indicates that the GCC (Gulf Cooperation Council) region alone will see more than USD 2 trillion in wealth transferred to next generation, with USD 500 billion potentially injected into the UAE economy, seeking professional investment management and legacy planning over the next three years.
In Hong Kong, more than 64 family offices were established in the first half of 2024, bringing the total to over 2,700 family offices currently in operation.
In Singapore, another international financial hub, 1,400 single-family offices qualified for tax incentives last year, marking a 27% increase from 2022.
In my conversations with referral partners and clients on establishing a family office, I consistently emphasize an essential wealth planning strategy to bolster the sustainability of family legacy preservation – the strategic use of life insurance solutions within the overall design and establishment of the family office operation and structure.
Here's why this approach is so crucial:
1. Insuring the key family members (shareholders)
- Ensure immediate cash liquidity to cover liabilities such as loans/ personal guarantees/ inheritance tax etc. in the event of the early demise of any family members (shareholders).
- Create a financial safety net for the surviving members (Spouse and minors) to prevent the need for a “fire-sell” of existing investments.
2. Avoid dilution of shareholdings among the family members / shareholders, maintaining control over the exchange of ownership of family / shareholder assets.
- Enable other family members / shareholders to repurchase shareholdings through death proceeds, executed by a buy-sell agreement among family members (shareholder agreement).
- Establish life insurance saving plans to accumulate cash from an early stage, offering younger generations options to withdraw policy assets base on their share of the family wealth This is particularly relevant to new generations who have foreign passports and are residing in a different tax jurisdiction.
3. A carefully designed and utilized ownership structure between different legal jurisdictions is critical in legacy planning.
- As a means of risk mitigation, we offer policy solutions issued from various onshore and offshore jurisdictions. Insurance policies governed by different legal frameworks provide ample planning opportunities to enhance the efficiency and effectiveness of wealth transfers.
By strategically integrating life insurance solutions into your family office structure, you can ensure the long-term preservation and growth of family wealth, providing financial security and flexibility for future generations.
1 Wealth-X A Generation Shift: Family Wealth Transfer Report 2019
Jeffrey Lee
Senior Vice President, Hong Kong office
Managing Director, Greater China and Middle East Region
jlee3@howdengroup.com
An experienced senior consultant who has over 17 years of experience working in the Private Banking, Life insurance and Trust sector. His advisory expertise focuses on wealth management and estate planning for Ultra High Net Worth individuals and families within Europe, Middle East and Asia Pacific Region.