Although Asian families are quickly rising in the ranks of the world’s wealthiest people, they are among the least prepared when it comes to wealth transfer and Singapore ranks at the lowest level of preparedness.
While the majority of Asia’s high-net-worth (HNW) families have had conversations about wealth transfer, less than a third have a full wealth transfer plan in place, a five-month research by RBC Wealth Management (WM) has revealed.
The study quizzed 425 respondents across Singapore, Hong Kong, Taiwan, China, Indonesia, and Malaysia with an average investable wealth of $5.15 million.
Results showed that while only 31% of respondents in Asia have established a complete wealth transfer plan, some 51% have intentions to gradually gift assets to inheritors during their lifetime.
‘Having a wealth transfer plan doesn't necessarily mean having a will, as can be seen in our study where only 5% of respondents from China had a will - although they had one of the highest percentages of respondents with a wealth transfer plan in place,’ Tho Gea Hong, Southeast Asia head of wealth management at RBC WM told Citywire Asia.
‘This lack of planning is indeed concerning for many of these HNW families as wealth transfer can be a very complicated process, which can be made daunting without proper planning and made more difficult with the obvious emotional impact of transferring assets,' she said.
When gauging the preparation process for Asian families, the research showed that more than two-thirds of inheritors had conversations with their benefactors before receiving a wealth transfer. Of these, 57% were informed of how the wealth passing to them should be used.
What's more, about 64% of benefactors in Asia have had conditions attached to their inheritance. Some 67% of those with no wealth transfer plan in place lack confidence in their children’s ability to grow and preserve wealth.
‘In Singapore, the study’s findings were quite surprising,’ Tho said. ‘Only 19% of Singapore HNW families have a full wealth transfer plan in place, which is the lowest among all Asian countries surveyed.
‘While 34% have prepared a will, these wills tend to lack comprehensive considerations around complex wealth transfer issues, such as transferring wealth across jurisdictions.
‘In addition, one in three Singaporean respondents did not make their next generation aware of their wishes and plans for transferring their wealth, which might leave their heirs somewhat adrift when the time comes to transfer wealth,’ she added.
When compared to RBC’s 2016 data on wealth transfer practices in the Western markets: US, Canada, and UK - in Asia there appears to be more of a focus on the emotional preparation of the next generation than elsewhere.
As opposed to the West, more Asians were worried about how the wealth will affect the motivation of their beneficiaries; if the beneficiaries will manage the money wisely; if the inheritance will cause a divide in the family; and if the beneficiaries will inherit the assets too early.
The report showed that while in the West 74% of inheritors said there were no conditions to their inheritance, just 36% of Asia’s beneficiaries were given that same license. Reaching a certain age, developing a career and achieving specific levels of education are the most frequent conditions set upon Asian inheritors.
‘[Furthermore], when it comes to the actual value of wealth expected to be transferred, Asia’s HNW families are not as comfortable revealing that,’ Tho said.
‘Only 47% said they were told of the value compared to the West where 73% were told approximately what to expect when wealth was transferred.’
She added that transferring cross-border assets is another area of concern. HNW families are spreading their wings across different geographic regions to take advantage of both personal and professional opportunities.
‘While these opportunities may be a boon for a family, they also mean there are greater complexities created in the wealth transfer process due to multiple regulatory jurisdictions,' she said.