Family Owned Business – How to plan to for Family Wealth to pass through multiple generations

Evanna Phoon wrote the below article and she is a Senior Franchisee of Rockwills. She can be contacted at info@malaysiawills.com . * This article written by Evanna Phoon appeared in Malaysia SME newspaper * 

This article appeared in Malaysia SME magazine.

Rockwills, Rockwills Malaysia, Will Writing

After writing the first article about Family Owned Business, it created a few enquiries and response. I have been receiving quite a number of emails whether I could assist them in their global estate planning. This is a very niche subject but it is very obvious that it is at heart of many Malaysia SME families. There are more complexity and issues than just writing a Will. This is because of the dynamics and complexity of Malaysia SME family business.

The question of Malaysia SME family owned business is the same “How do I ensure that my wealth can pass through more than three generations?” There’s a chinese proverb saying that Wealth do not Pass Through Three Generations. The first generation is the founder of the company and they started out from scratch and worked very hard to build the family business. The second generation, start to be contented with the wealth generated from family business or some, after studying overseas, choose to venture into other profession. On the third generation, because of the comfort lifestyle that they are in, mostly will not be interested to work hard and will be thinking of ways to spend, enjoy or gamble (aka invest) their wealth.

As I had assisted a number of SMEs in planning of transferring their wealth across multi-generations, the discussion process to setup the structure takes months and it requires several closed doors meetings with family members and family business advisors. Nevertheless, it’s a very challenging yet personally fulfilling process that I really love to share.

Let’s continue on from the previous issue on the topic of identifying the characteristic of families that need to start thinking and planning on how to protect their wealth and family business

The first characteristic is significant capital or we can say that we are looking at a family business with paid up capital of RM 3-4 million, but at this point, there’s no exact valuation of wealth and by writing a Will and pass on RM 1-2 million to their children looks bearable, but with listing exercises, with joint ventures, with globalization, there’s a valuation of their wealth. A RM 10 million paid up capital family owned business, through listing, suddenly fetches a premium and became RM 50 million family owned company, we can see a huge figure and this figure is large.

One client said to me, “Evanna, if I give my children RM 1-2million, I think it’s a lot because I started out with nothing, but it’s still ok.  But if I give them RM 20-30 million, it’s CRIMINAL !” which in a way, it’s true. What the client is trying to ask is “Do I give all directly or do I have a way to give a portion and put aside a certain amount across generations.”

They are looking at a different kind of estate planning mainly to house a portion of their wealth across multiple generations; this structure and planning can not simply be resolved by writing a Will.

The other characteristics are the growth of family base, the dispersion of properties across different countries and the dynamics of families across different jurisdiction. I have discussed it in the previous issue that all this family dynamics bring upon a lot more consideration when we do estate planning for them, they can no longer do a simple Will and say “All that I leave behind, will follow the Malaysian Distribution Law”, this is because once your property situated in UK will immediately attracts UK law.

Geographical dispersion of family members is one of the key concerns among Malaysia SME families. For example, if a daughter marries a Canadian and the father decides to bless her with some investments. Because Canadian practices a worldwide taxation and all income deriving from this investment from the father will need to be reported and taxed by the Canadian government. Once the assets are in their children’s name directly and their children are in overseas, the number one question that most clients will ask is what kind of taxation that will come on.

One client mentioned that all his children went abroad to study and all came back to Malaysia and settle down home. So, he feels lucky that he only needs to worry the taxation in home country. But my next question to him is, “where are your grandchildren or great grandchildren going to be? Are they all going to be in Malaysia? “Well, we really don’t know. Therefore, planning for family owned business or wealth should cater for a longer team, say 100 – 120 years

It is not because the founders want to rule from the grave, it is because they want to make sure that while their children are well looked after, they will want certain things to go beyond their children. Therefore, planning for such family and setting up the structure should be long term yet flexible because law changes, dynamics of family and family business changes.

Having gone through the characteristics, in the next issue, we’ll explore on the key concern of Malaysia SME families. Banks, investment consultants, business advisors will help the Malaysia SME families business make the money, while this column is dedicated to share with Malaysia SME on how to look out and protect their money… Stay Tuned.

 

About the Author:

MalaysiaWills CEO Evanna Phoon

Evanna Phoon is CEO & Founder of www.MalaysiaWills.com, Malaysia’s first online will writing service provider for Rockwills Corporation Sdn Bhd & as-Salihin Trustee Bhd. Visit her website to download FREE ebooks  www.MalaysiaWills.com & watch over 300+ videos on the topic of Will Writing for Personal & Business. She can be contacted via info@malaysiawills.com.

 

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Monday, June 4th, 2012 article

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