Consider Your Legacy

Some observers of wealth and its associated behaviours refer to a well-known wealth cycle:

• The cycle begins with wealth creation where you derive income from various avenues – an employment, a business, or possibly an inheritance.
• The next stage is wealth enhancement and this is when you grow the returns on your accumulated and invested assets
• This is followed, usually in later life, by a wealth protection stage which is about ensuring that the funds and assets are safe and can’t be easily lost
• Finally, the cycle ends with the distribution of that wealth, usually to the next generation

This model is a useful reference point for advisers to identify the likely needs and areas of interest of clients at different life stages. However, as with every model, it is limited.

For instance, often in Asia the wealth creation mode doesn’t stop. The wealth creators enjoy what they are doing and just keep going. I once met a very elderly gentleman who was fabulously wealthy. He was repairing a machine in an old machine-parts factory in Taipei. When I enquired, as politely as I could, about why he was still working, he simply explained that this was what he loved doing.

However, even though the desire to continue a business may never stop (and so the wealth enhancement stage of more passive investment may never totally come) we all eventually become aware of our mortality, and should think about what we will be leaving behind.

But when is it the right time to do this?

Planning Early is Always Good

Your 'estate planning' should not only affect what happens after your lifetime but it should also serve to protect your assets from external threats while you are alive, and takes into account a period of your life when you may be elderly.

Wealth is threatened by a vast number of things today. Many countries around the world are suffering unrest or near-war conditions. How safe is the currency you’re holding? How safe is your bank? The weakening of bank secrecy, and recent cases where information has been stolen from banks, threatens not only those who have failed to report their income for tax purposes, but also those who live in countries where the perception that you are wealthy can lead to physical dangers such as kidnapping.

Despite all of these ever-present threats, the greatest destroyers of wealth are often those we don't think about or anticipate until too late. Divorce, illness, sudden death, freezing of accounts pending probate, family disputes, unexpected litigation, being cheated during old age, business failure, personal guarantees being called on, and claims for past tax. All these situations can be added to the everyday familiar investment wealth destroyers of volatile markets, over-leverage, and over-concentration.

The best time to manage financial disasters is before they happen. Putting a structure in place that can protect your hard-earned wealth from unexpected threats can make a lot of sense.