What is wealth structuring?
Wealth structuring is organising someone's assets all over the world in a way that meets their objectives coherently.
We do this first by mapping the assets: where are they, who owns them now, what is their worth and are there any special considerations for assets like businesses, art, bloodstock or intellectual property, for example.
Next, we identify the owner's objectives for each asset. You won’t be surprised to hear that many families express similar core objectives around:
- providing for their family
- protecting the vulnerable
- anticipating an orderly succession
- controlling exposure to tax
- and pursuing philanthropy
How do people know if they need wealth structuring?
We ask the question: if you did nothing, how close are you to achieving all of this? Wealth structuring is what we do to reduce the discrepancy between where you are now and achieving your objectives.
Where should an individual start with wealth structuring?
Putting in place a plan for structuring wealth involves assessing how much the current ownership needs to change. In the Arab world, it is customary for a family founder to provide for the family, and. there are cultural understandings around how a family and its business interact. For Muslims there are also the precepts of Shari'a and the fundamental importance of giving that is a big part of living your faith.
Wealth structuring through trusts, private foundations and companies is increasingly popular in the Arab world. Companies and private foundations are more popular, because of the relative clarity around control and benefit. Trusts have their place, because of their inherent flexibility.
Neither a trust nor a foundation requires an owner. This means they can endure for generations, protecting a founder's wealth for their family in one or more structures for collective benefit. In the hands of the right advisers, they can be combined with each other and with companies to achieve a founder's particular aims.
These structures can hold a variety of assets, too:
Tangible assets such as:
- Real estate
- Financial investments
- Art
- Vehicles
Intangible assets such as:
- Shares in the family business
- Intellectual property rights
It may be that the assets are in a variety of jurisdictions or there may be family politics that mean more than one structure or even an umbrella vehicle would work better than individual, stand-alone structures.
Most clients have an overriding request, to keep things simple. Doing that well is a complex task because it requires two distinct skills:
- the first is the technical side of co-ordinating international law, tax and regulations on transparency and applying that knowledge to the founder's often complicated situation; and
- the second is the ability to engage with not only the founder, but their family and the family office at the same time.
One of the key prerequisites, of course, is that the founder, their family and family office have to want to engage. Those of us who do this work know that one of the greatest frustrations is lack of engagement.
What challenges arise for people in the Arab world who are thinking about wealth structuring?
The two main inhibitors tend to be: resistance to losing control and how best to incorporate Shari'a. Family disputes over wealth happen too often and it's important to get this right for as long as possible.
Planning can often falter early in the wealth structuring process because it is an understandably difficult step for a founder to accept that they will have to give up a certain amount of control. As our conversations evolve, it becomes clearer and clearer how the new structure can meet a founder's objectives for the family and the business.
There are ways of preserving a certain level of control and ensuring the founder can influence or even veto key decisions. Calibrating the power balance within a wealth structure takes time.
As to Shari'a, it has a variety of important roles:
- Founders often ask me to show how the structures I design does, indeed, fulfil their duties to God and their family;
- Beneficiaries understandably want to understand how their share of the anticipated inheritance is protected; and
- From an investment perspective, every founder and family have their personal view on the extent of Shari's when setting the investment policy.
A well-crafted wealth structure can incorporate all of these things, if the founder, their family and trusted advisers engage in the process meaningfully and buy in from the start. One of the ways of doing this is to put in place non-binding documents like a family charter or constitution that the family can help to shape.
A letter of wishes provides guidance about how the founder would like the foundation or trust to be run. A family charter sets out a framework for how a family's governance and succession planning is intended to work. Together, they provide the human element in the suite of documents that make a wealth structure.
And family is, after all, one of the most important aspects of life in the Arab world.
How Mishcon de Reya can help
We have a deep understanding of the dynamics and politics of families, family businesses and personal relationships. We understand the issues our clients face and what keeps them awake at night. The people we advise are often international, with wealth and business interests in numerous jurisdictions and sectors.
Find out more