Over my 22 years in the Life Insurance industry, I’ve seen many methods of wealth transfer from one generation to the next.
I’ve noticed two major trends: One is the preference for more liquid assets and the other trend is the rising matter of ‘choice.’
Let me explain: With every passing generation, we’re seeing the increased awareness and practice of the freedom of choice. Kids today are choosing their professions, they’re choosing where they want to live, whether they want to get married, have children, join the family business – it’s all boiling down to a matter of personal preference and choice.
And with that comes the need for more fluidity when it comes to wealth and inheritance, which has led to more and more High Net Worth Individuals looking at liquid assets and flexible methods of intergenerational wealth transfer.
A Big, 184-Acre-Sized Problem
A couple of years ago, Sundar, a close friend and client called me with a ‘big’ problem he had on hand. Sundar told me that his dad had just gotten off the phone with him and had told him that he was leaving him 184 acres of prime coffee plantation.
After a pause, I said ‘Ok, what was the problem?’
The problem, Sundar explained, was that this coffee estate was in rural India, a 6-hour drive from the nearest airport. His father had also asked him to promise that he wouldn’t sell the family coffee estate no matter what.
So now, Sundar had been left with an asset that was a significant problem for him rather than a blessing. How was he, an entrepreneur based in Dubai, with a non-Indian wife, going to run a 184-acre coffee estate based in rural India?!
What Would Have Helped
This wasn’t a case that I could do much about as it stood, but it left me thinking about what I would have done differently or how I would have advised the family earlier on.
I would have recommended that Sundar’s father create a liquid asset pot.
I would have recommended that he invest the earnings from the coffee estate into a Universal or Whole Life Insurance Policy equal in value to the estate.
These policies provide cover up to the age of 100, with Universal Life going up to 121. And with a policy like this in place, upon maturity of the policy even if (God-willing) the patriarch was still alive, his family would still receive the full payout.
The Typical Expatriate Story
Let me share another example that might be more relatable to many of us expatriates here in the UAE.
I’m originally Indian, born in Oman, and raised in the UAE. Almost all of my family is based here in Dubai.
Let’s say my parents decide to build up a noteworthy property portfolio in India. They would ideally acquire property in Karnataka, our hometown in India. And when it comes time to transfer this asset down to me and my children – my parents would rest knowing they’d built and passed down a formidable estate.
Here’s the problem though: The wealth transfer would stop with me.
My kids are Canadian citizens and so they wouldn’t be able to own property in India.
So now, if I wanted to pass this asset on to them, I’d have to liquidate the property portfolio. If you’ve ever had to list and sell property in a country in which you don’t reside, especially in a busy, full, property-listings-saturated market like India, you’ll agree it’s a pain.
So, the first set of challenges would be around listing the properties, finding the right buyer, and selling the property at the right price.
And then comes the challenge of finding the right, legal structures, and methods for me to bring that money from the sale back into Dubai. Because the Indian Rupee has depreciated steeply over the last 15-20 years, I’d be bringing back a much smaller sum than the asset was worth back when my parents made these property investments.
What if I just left the property as property and managed that as an asset in India?
Not an option: While I went back to India every summer growing up, my kids have been to India perhaps three times in the last 11 years.
What are the chances that they are going to want to manage property over there?
Here’s what I’m getting at:
As the world is getting more global, younger generations are being taught to choose the lives they want for themselves. Fixed, grounded, solid-state assets like property aren’t the most feasible ways to keep legacies alive anymore.
I’m seeing more and more High Net Worth Individuals turn to liquid assets and the myriad of benefits that structures like Universal and Whole Life Insurance policies provide.
It’s all the benefits of leaving behind a hefty inheritance, without the hassle.
Could your estate use a little more liquidity? I’d be happy to talk about the right ways for you to go about it.