Is Asia's next generation ready for $2.5 trillion wealth transfer?

It will certainly be a well-earned retirement. Entrepreneurs in Asia, particularly in India and the People’s Republic of China (PRC), have driven impressive economic growth over more than four decades¹ and are now deciding how to pass down the substantial wealth they have created. However, with an estimated $2.5 trillion in assets to transfer by 2030,² the question many are asking themselves is: are the next generation ready? 

“It takes a long time for Chinese parents to feel prepared to give their children possession of assets,”  says Jocelyn Tsao, who heads Withers’ family team in Hong Kong. “They know it makes sense to pass it on in their lifetime but many are still hesitant, feeling that assets are better secured in their own hands and their own control.”

Managing the family

That their adult children would appreciate more financial independence is not in doubt. While some have been brought successfully into family businesses, others are struggling to make their mark outside the fold. Reports show rising youth unemployment and falling consumer confidence in the PRC, with many Chinese millennials needing financial help from their parents to maintain the lifestyles in which they grew up. 

“Often clients’ behaviour will be interpreted as controlling but when you discuss it with them in detail it really stems from the Asian mindset, where the collective is more important than the individual. The older generation will want to ensure that the family prospers and there is continuity, with no one breaking away,” says Daniel Yong, a Singapore-based partner in Withers’ corporate team.

Office politics

As advisers to successful families across Asia, it is often the firm’s job to help successful clients achieve those long-term goals. One very popular solution is the family office. “Our offices in Singapore and Hong Kong are advising people all the time on the best way to set up a family office,” says Daniel. “It is becoming a very attractive source of funding and lending.”

Whether through a family office, a trust or philanthropic foundation, Withers’ experience suggests that involving the next generation in managing the family’s resources early sets the scene for a smooth transition later. “We work with several prominent families in Singapore that have created family trusts with the parents on the investment committee,” adds Yong Sheng. “It is quite an enlightened approach: we go through the options and they say OK, let’s set it up and see how it goes. They are giving the next generation the chance to play around and seeing how they work together as siblings – and of course, the parents are still there to provide oversight.”

Love and trust

Finding the right moment to hand over control can be difficult, though. According to Jocelyn Tsao, even parents who believe their children are ready for a wealth transfer may be concerned about a potential future divorce . And rightly so, since a divorcing spouse is likely to be entitled to half of an individual’s assets, including inheritance, property and any shareholdings in the family business.  

“Here in Hong Kong, setting up a trust would be the best way to secure assets, but the settlor does need to part control because otherwise, the trust will not be seen as a family resource,” Jocelyn explains. “It can be a difficult conversation when a parent is trying to make sure they retain absolute control over funds and we have to explain that in order to gain that security, you have to give something up. You can’t have both.”

That said, a dynastic trust can be drafted to encourage following generations to follow the settlor’s wishes. Funds can, for example, be distributed upon certain events happening: perhaps when the beneficiary completes their education or gets married. Such detailed planning may sound draconian, but the elder generation would argue that their primary goal is to ensure that both the family and its assets are protected.