Wealth succession across the Gulf is changing.
Recent Financial Times reporting has highlighted growing interest among wealthy Middle Eastern families in using English wills and other international structures to achieve greater flexibility in the way family wealth passes between generations.
The development is part of a much broader trend. Gulf families are becoming increasingly international, while the assets they own, the countries in which their children live and the family structures they need to accommodate are becoming more complex.
For family offices and wealth owners, the question is therefore increasingly not simply who will inherit, but how family wealth should be governed, protected and transferred across multiple jurisdictions and generations.
From inheritance to intergenerational governance
Traditional succession planning can sometimes focus too narrowly on what happens following the death of the wealth creator.
For substantial family wealth, that is no longer sufficient.
A successful succession plan should consider:
- who will own the assets;
- who will control them;
- how decisions will be made;
- whether different children should receive different types of assets;
- how family businesses should continue;
- how younger beneficiaries should be protected;
- whether distributions should occur immediately or over time;
- how family disputes can be minimised; and
- how the structure will operate when the family spans several countries.
These questions become increasingly important as wealth passes from one founder to several children and ultimately to a much larger third generation.
Why Gulf families are becoming more international
Many Gulf families now have children who study, work and establish families in London, Europe, the United States and elsewhere.
Family members may therefore have different:
- citizenships;
- tax residences;
- matrimonial regimes;
- succession exposures;
- lifestyles; and
- expectations regarding inheritance.
Assets may be equally international.
A family based in the Gulf may hold:
- UAE businesses;
- London property;
- European real estate;
- international investment portfolios;
- offshore companies;
- private equity interests;
- trusts;
- foundations; and
- family investment structures.
Succession planning designed entirely around a single jurisdiction may therefore no longer reflect the economic reality of the family.
Greater flexibility between beneficiaries
One of the issues attracting increasing attention is whether wealth should necessarily pass to family members according to predetermined proportions.
Some families may wish to provide equally for sons and daughters.
Others may have more complex objectives.
One child may be managing the family company while another lives abroad and has no involvement in the business. One beneficiary may require long-term financial protection, while another may already possess substantial independent wealth.
There may also be second marriages, divorces, children from different relationships or beneficiaries residing in jurisdictions where the receipt of family wealth creates significant tax or legal consequences.
International structures can provide families with additional tools for addressing these circumstances.
However, no single will, trust, foundation or company should be assumed to solve every succession issue.
Wills are only one part of the structure
International wills can play an important role, particularly where a family owns assets in jurisdictions that permit substantial testamentary freedom.
But succession planning should begin with the ownership structure itself.
Families should understand:
- which assets are personally owned;
- which are owned through companies;
- which are held through trusts or foundations;
- where those entities are established;
- which laws govern them; and
- what happens to ownership or control following the death or incapacity of the founder.
A family may discover that the succession of the underlying asset is determined not by the individual’s will, but by the constitutional documents of a company, foundation charter, trust deed, shareholders’ agreement or other governing instrument.
These documents therefore need to work together.
Trusts and foundations
Trusts and foundations continue to play an important role in international family wealth planning because they can separate immediate beneficial enjoyment from legal ownership and governance.
Depending on the structure and jurisdiction, they can allow a family to establish a framework determining:
- the eligible beneficiaries;
- distribution policy;
- investment objectives;
- succession of control;
- treatment of vulnerable beneficiaries;
- education and healthcare funding;
- philanthropic objectives; and
- preservation of family assets.
They may also help avoid the fragmentation of important family assets between numerous heirs.
The appropriate structure, however, depends heavily on the family’s circumstances.
Tax residence, citizenship, asset location and the residence of beneficiaries can materially affect the treatment of a trust or foundation.
For internationally mobile Gulf families, the structure should therefore be designed from a multi-jurisdictional perspective.
Family businesses require particular attention
Succession becomes considerably more complicated where a substantial proportion of the family’s wealth is represented by an operating business.
Equal inheritance does not necessarily mean equal management.
Dividing a business equally between several heirs without agreeing how it will subsequently be governed may create difficulties for both the family and the company.
Families may therefore need to address questions such as:
- Which family members will work in the business?
- Who will appoint directors?
- Who can sell shares?
- Should family members be permitted to sell outside the family?
- How should dividends be determined?
- How should disputes be resolved?
- What happens if one branch of the family wants liquidity?
- Should ownership and management remain separate?
These issues can be addressed through carefully designed corporate governance and family governance arrangements before succession occurs.
The family constitution
For larger families, a family constitution can provide a framework around which the legal structures operate.
It may address subjects including:
- the family’s shared values;
- ownership principles;
- employment of family members;
- governance of family companies;
- investment strategy;
- philanthropy;
- education of the next generation;
- conflict resolution; and
- decision-making processes.
A family constitution is not a substitute for appropriate legal documents. Its value lies in establishing a common framework so that wills, trusts, foundations, shareholder agreements and investment structures reflect an agreed family strategy.
The role of the family office
As family structures become more international, the family office increasingly becomes the point at which these different elements are coordinated.
A family office may help maintain:
- ownership records;
- entity structures;
- governance calendars;
- trust and foundation records;
- succession documents;
- investment information;
- family reporting;
- compliance obligations; and
- communication between advisers in different jurisdictions.
This administrative function becomes particularly important where the family uses several legal and wealth-holding structures.
Without central coordination, succession arrangements designed at different times and by advisers in different countries can become inconsistent.
Planning before a succession event
The worst time to discover weaknesses in a family structure is following the death or incapacity of the founder.
Families should therefore periodically review:
- wills;
- corporate ownership;
- trusts and foundations;
- powers of attorney;
- shareholder agreements;
- beneficial ownership;
- beneficiary provisions;
- family governance; and
- international tax exposure.
Particular attention should be given following major events such as marriage, divorce, relocation, the acquisition of foreign property, a business sale or a significant change in family wealth.
From wealth preservation to continuity
The increasing interest among Gulf families in international succession solutions should not be viewed simply as a question of choosing between different inheritance systems.
It reflects a deeper change.
Families are asking how wealth created by one generation can remain coherent when ownership passes to many individuals living in different countries with different priorities.
The answer will rarely be one document or one jurisdiction.
Effective succession planning increasingly requires the coordination of estate planning, trusts and foundations, corporate structuring, family governance, international tax considerations and ongoing administration.
For Gulf families with increasingly international lives and assets, the objective should not merely be the transfer of wealth.
It should be the preservation of family continuity.
WTA can assist families, family offices and their advisers with the review and implementation of international wealth-holding structures, trusts and fiduciary arrangements, corporate and SPV administration, family governance and ongoing coordination of cross-border family structures.
This article is intended for general information only and does not constitute legal, tax or investment advice. Specific advice should be obtained based on the family’s jurisdictions, residence, citizenship, assets and existing legal arrangements.
