How to save the accumulated wealth for the next generation? How to keep it safe from business risk


Neha Pathak , People always discuss on how to build Inter-Generational Wealth. But no one talks about how to save it. Wealth once created needs to be saved and protected not only for the next generation but also for ourselves. One of the most important aspects for a businessman will always be to save money from his business risk.
We all understand that there are risks associated with business but we rarely acknowledge it and separate business assets from personal assets. It is quite common for a businessman to reinvest the business income generated in the business instead of taking profits or declaring dividends or making personal guarantees for the business or investing within the company. By not demarcating personal and business assets, one is not only putting their entire capital at risk, but is also making it very difficult for the family to benefit from it in the event of an eventuality.
It is pertinent to know that for the wealth of the family, it is necessary for the individual to have a secure plan and also to have an asset base for the family. This can be done either by transferring it in the name of family members or by creating a private family trust. The reasons for creating a private trust instead of holding assets directly in one’s personal name are as follows:

proper succession plan

One does not realize the importance of a succession plan until something untoward happens. Generally people make a Will for their property. With a Will, a personal trust can be created where the individual can contribute with family members as beneficiaries in order to protect the family assets against business liabilities. The trust not only helps in creating a long-term succession plan but also takes care of any contingencies or sudden medical emergencies. Also, property held in a trust does not require a probate or succession certificate which in turn saves the family from unnecessary court-related hassles and delays in benefiting from the property.

Philanthropic contributions in line with family values

Over the years, we all have experienced that people do not want to be involved in the day to day operations and compliance of NGOs but are comfortable making charitable contributions not only during their lifetime but also after lifetime. They want to do long term planning so that charitable contributions are made over time and not in a lump sum manner. Many times, people have felt that they want to give money to a particular cause and not to a particular charity, where there may be many charities. Also, they want the power to evaluate whether a particular charity is doing well and if they want to continue with the same. A private family trust serves as a vehicle to hold and invest family assets for the long term in any number of instruments such as equity, debt, etc., where one objective may be to make long-term charitable contributions.

Family property should remain within the family and should not be misused

Apart from charitable initiatives, a person wants his wealth to benefit his family and stay within the family to benefit them in a way where no one can take undue advantage of them. A family trust with suitable terms will ensure that the family assets are protected from problems like claims of creditors, frivolous demands, bad divorces etc. and the family continues to benefit.

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controlling the investment and distribution of assets

There are instances where a family member may not understand how to handle or invest money or is not in a position to hold assets (eg a minor). In such a scenario, it would be prudent to form a private trust for the benefit of such individuals so that the investment is controlled and disbursed in time to take care of their needs like education, maintenance, medical etc.

Providing facilities to people with special needs in the family

There are situations when there is a person with special needs in the family or an old person with physical or mental handicap who is unable to manage his/her own affairs except finances or family property. In such cases, a private trust can be formed where a certain portion can be set aside and taken care of for medical, education and other needs of such family member.
From the above, it is clear that a businessman can transfer assets to a private trust and specify the purposes of taking care of the needs of the family. One should not procrastinate on such issues and seek professional help to document such requirements.

(The author is Head of Trust and Estate Planning, Motilal Oswal Private Wealth. Views expressed are personal.)

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