The Flight to Stability
MIDDLE EASTERN high-net-worth (HNW) families frequently travel internationally, have global business exposure and are ever more influenced by foreign cultures. This is expedited by technology connecting more people all over the world than ever before. Our experience as trustees working with Middle Eastern families would suggest there are several key trends emerging in the region, many of which have developed in response to economic and geopolitical factors.
SERVICES AND TRANSPARENCY
More and more Middle Eastern HNW families are keen to explore wealth planning in order to allow their wealth to be passed on to the next generation in a controlled manner and in line with both their carefully considered wishes and Shari’a law provisions surrounding the distribution of wealth on death.
Families are, however, increasingly aware of the fees charged by fiduciary service providers, and are rightfully questioning the value of such arrangements. Many are now seeking transparency in this area and are willing to transfer their structures to service providers deemed more open, even migrating said structures across jurisdictions. This is often carried out in tandem with efforts to simplify structures that may have been overly complex and expensive in the past, helping families to better understand what they are signing up to.
Property remains a popular asset class; however, the type of property and the jurisdiction in which it is located are changing due to variations in the tax treatment of properties, such as the recent changes with regard to holding UK residential property through a structure.1
Structures may hold a conservative class of financial assets, often including property, with the rationale for the structures being very clearly set out to benefit future generations. This may mean assets being allocated to certain children outside the scope of Shari’a law inheritance rules, or being established to maintain standards of living, to ensure education and healthcare for family members, and more.
We have also observed a growing interest in how and where data is held, and the cybersecurity measures that are put in place to protect it. Families and their advisors are increasingly keen to understand the systems and controls that service providers have in place to protect their sensitive or personal information.
Recent high-profile data leaks have driven a flight to quality and, for many informed Middle Eastern families, the risk of being associated with low-cost, low-regulation jurisdictions is no longer considered acceptable. There is a greater acceptance of the importance of examining what a jurisdiction has to offer in terms of infrastructure, its ability to implement global regulation, access to strong service providers, transparency, responsiveness and robust legislation. With this, there is a gradual acceptance that you get what you pay for, and this has seen an increase in families looking to well-regulated jurisdictions.
Many HNW families with Middle Eastern origins have a global footprint, with family members across the generations living in different jurisdictions, often with complex, high-taxation regimes. This means that tax planning and administration are becoming increasingly complex. In our experience, despite the increased fee sensitivity mentioned above, higher administration fees will be seen as acceptable if value can be clearly and transparently demonstrated.
There is a continuing desire for control and, for many families, the concept of gifting assets to a trustee and not retaining any control remains difficult to grasp; this is especially evident with older generations. However, we are also seeing younger members of the family being more relaxed with the concept, and within our structures we are witnessing this second generation becoming involved with the management of family wealth. This generation may have been educated outside the Middle East and may be more open to new planning ideas, and more aware of the dangers of not being properly advised in relation to estate and succession plans. Striking a balance between the generations of a family remains a consideration for trustees.
Trends come and go, but what is clear is that we will see more Middle Eastern families recording a need for carefully considered estate and succession plans. Ongoing political and economic volatility in the region is causing these families a degree of concern and many are, prudently, looking to foreign trustees to help implement planning for their international assets in stable, conservative jurisdictions.
Michael Giraud and Mark Pinnick, 'The flight to stability', STEP Journal (Vol27, Iss3),p.31, April 2019