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Protecting the family fortune

Wealthy families are all too aware of the importance of protecting their wealth. Unfortunately, according to a new survey on this topic, in practice families are failing to do enough

A ground-breaking new study has provided a unique glimpse into how ultra high net worth families around the world are attempting to protect their wealth. And the stark fact is that they are not doing enough.

Surprisingly, just a fifth of family business owners have asset protection plans, while only a third are implementing succession plans to ensure the family maintains control of the business.

It is a sad but common truth that many owners only become attuned to protecting their wealth after they have had their fortunes risked or lost. By this time, of course, it is often too late.

The fact that only 26.9% have asset protection plans is therefore a worrying statistic. When you consider that 64.5% have already been involved in unjust personal lawsuits and a further 89.7% say they are concerned about them, it becomes even more surprising.

However, it is not because of a simple failure to act. "Most owners of ultra high net worth family businesses don't implement strategies for asset protection in large part because no one has educated them about such options," said Mindy Rosenthal, managing director of Campden's North American business and co-author of the research.

While two thirds of respondents said a lack of knowledge was the prime reason behind not having a plan in place, 26% said they were too complicated.

Legality was a further issue. Four percent of respondents were concerned that asset protection solutions would be illegal, which highlights a wider trend that the wealthy attract those who seek to exploit legal systems for their own personal gain.

This all points to the complex relationships between owners and independent advisors. "Wealthy family-business owners tend to use multiple advisors, but they don't have a primary advisor overseeing the big picture and coordinating the various players," Rosenthal said. "There's a true need for a quarterback."

The report also shed light on the lengths some families and their advisors will go to in order to protect their wealth. Again, this highlighted problems associated with advisors. A massive 92% of respondents admitted to suing their advisors over highly aggressive asset protection solutions that were deemed to have exceeded acceptable limits. Nearly 80% blamed their advisors for such misdemeanors, while 59% of advisors cited financial and competitive pressure for their actions.

But protecting the family's wealth is not just about asset protection. With so much wealth tied up in the business, it is no surprise to learn that 78% want the family to keep control of it and, consequently, 75% have a succession plan in place. The system breaks down, however, when it comes to implementation.

The study found that only 38% of owners were actually putting succession plans into practice. In addition, most individuals with succession plans in place were not focusing on tax-mitigation issues (73%), even though nearly all participants (93%) reported a desire to lower the tax burden associated with transferring the business.

"Most ultra-affluent family business owners do have basic succession and trust and estate plans. The problem is they are all too often sitting on shelves gathering dust. Not only do these families need to act on implementing and updating their wealth planning strategies, they need more sophisticated strategies to better protect their wealth," said Rosenthal.

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