Albert Henriques, CEO at Bank Julius Baer Monaco, talks about global families and the challenges they face preserving wealth through succession.
In a not so recent history, a family business would be passed down to the next generation without much thought. Today, younger family members may question the values of the company they are due to inherit, and instead try to carve their own path down a more sustainable road to profit.
In its recently published Global Families report, Julius Baer says that this societal shift, particularly in the West, has introduced a new layer of complexity for multigenerational and multinational families seeking to preserve their wealth, interests, and often businesses.
Albert Henriques, CEO at Bank Julius Baer Monaco, underpins the idea that wealthy families today are more globalised and diverse than ever—a trend that is not going anywhere. “Managing global lifestyles, assets and systemic cultural differences—and the administrative burden as a consequence of this—can be challenging. Research has shown that wealth decay over just a few generations is much more likely to happen in cases where no family governance and succession plan is in place, where family values are not strong enough to ensure cohesion and where no charitable or philanthropic engagements are in place.”
Henriques says these complexities, as revealed by the inaugural Julius Baer Family Barometer, require a broader coverage of topics with assistance of third-party advisors. “Having a trusted partner for managing and navigating the complexities and selecting advisors is key; this is where we see our added value. Even if we can rely on a significant track record and experience in accompanying wealthy families, we look at every client situation individually.”
It is not just about lending a hand so that family wealth and prosperity remains on track, but ensuring that family values stay alive and that impact happens where the family sees it to best fit. “Essentially, we help our clients free up time for what really matters to them,” says Henriques.
Family governance for business considerations
No two families are the same, nor are their approaches to business or wealth. A newly moneyed family in Europe and a long-established wealthy family in Asia will have very different requirements, and so every aspect of governance must be tailored to the individual situation. In places such as Germany and Switzerland, family governance is well established as a discipline and many global families look to these countries for guidance on how to safeguard their businesses and wealth for the coming generations. However, what works for a family in Berlin or Zurich will not necessarily work for a family in Beijing.
Whereas in the past, wealth might have been created by one entrepreneur in one country, passed to the male heir, and expected to maintain the family for generations, today’s globalized nature of wealth means the requirements and considerations of moneyed families are far more extensive and complex. By employing the discipline of family governance, security and stability can attempt to guide assets through periods of boom, bust, uncertainty, and renewal, benefiting not just family members but also a broader spectrum of society as a whole.
More important in succession is the so-called fair process, which is a cornerstone of family governance. This involves creating a set of fair, transparent and verifiable rules for all family members and shareholders, and their access to the family business. These can then be complemented by a constitution that determines the conditions for other family members to work in the business, as well as the criteria to qualify as a suitable successor and guaranteeing security for the next generation. It also helps to mitigate any personal relationships interfering with business decisions, and to ensure coherence between family members. In large families where interests diverge considerably and the potential for conflict is great, this is key, as disputes cause significant damage to the continuation of a company.
Governing family wealth
Family governance is not just for businesses, though. The same societal changes that have caused a shift in the way family business succession is handled have also altered the way family wealth is maintained and transferred. Younger generations of wealthy families have grown up in a more open society where education, independence, and female empowerment have changed the way they consider and use their legacies.
This has not only challenged the preservation of specific family values, but also means a standard blueprint for life as a family no longer exists in a hyper-individualised world. As a result, family governance has become increasingly important for wealthy families too.
Family governance can offer a platform for discussing different views between family members, and for mitigating any potential conflicts before they arise. It can also be applied to nearly every situation and can help maintain wealth through family changes such as marriage, divorce, and death.
Establishing a single-family office is useful for a highly diversified portfolio requiring active professional management, while for smaller or less diversified portfolios, a multi-family or virtual family office is a good option. A diversified asset portfolio, if managed correctly, is sufficient to provide income for family members over generations. In this context, the establishment of a family office, or the establishment of a family foundation, both of which are instruments of tailor-made family governance, should be considered. Additionally, this way the family can find and manage the relevant experts to support them.
Succession in Monaco
“For over 700 years, the Principality of Monaco has been a shining example of successful long-term family governance and planification. Monaco has demonstrated great agility and effort in securing its place as one of the most attractive destinations for entrepreneurs and wealthy families in the world. The development of stable infrastructure and flexible legislation has allowed Monaco to support the needs of global families based in the Principality and offer a broad range of service industries including: civil and common-law experts, solid financial institutions, single and multi-family offices and a comprehensive legal framework, specifically attuned to the international legal environment,” points out Albert Henriques.
In Monaco the laws are fit for purpose and suit clients’ needs, therefore planning is not necessarily an issue for them. However, in other cases, it is not so simple and the solutions the law offers are not fit for their family’s constellation and require much more planning.
“Monaco is a low inheritance tax country,” explains Henriques. “However, many Monegasque residents have assets in other jurisdictions with high rates of tax on death. Furthermore, tax alone is frequently not the main driver for a proper succession plan. Legal considerations, family governance, asset protection and management are of material importance and frequently require consideration as part of any family’s long-term wealth preservation strategy.”
In Monaco, more than 125 nationalities are represented, and the obvious need for an international legal framework was implemented accordingly over time. Yet, within an international succession-planning framework, certain situations need to be addressed, especially noting that Monaco does not have trusts enshrined in its domestic law.
These include, for example, whether forced heirship rules apply—that is the testator’s rights to dispose freely of all his/her estate outside defined members of the family on death is restricted. Additionally, whether matrimonial property regimes impose or recognize the terms of a marriage regime that will prevail over succession rights. As well, settlement of a succession is managed by a notary who will draft all the necessary contracts and certificates, and the heirs will automatically succeed without any need for a legal procedure like a grant of probate. On the tax side, Monaco has only one inheritance double-tax treaty (signed with France).
“In this complex and moving environment, it is worth noting that a good transition of assets on death in Monaco is only possible with the support of qualified professionals relying on an international network. An in-depth and exhaustive succession that is aligned with the objectives of the client, as well as all related foreign laws, concepts or agreements should insure no conflicts of law arise in Monaco. In terms of best practice, future updates with the client ensure the sustainability of the plan in place,” states Henriques.