Julius Baer's seven tips on how to preserve your wealth

The turbulence caused by Covid-19 has made people realise that perhaps they should take a fresh look at their asset portfolios and also their lifestyles. 

There is a renewed focus on quality of life. Retirement planning is no longer driven primarily by age, but also by affordability: how much liquidity is needed sustain my lifestyle?

Covid-19 is also making people more conscious of their own mortality, which is leading them to carry out not just medical but also financial health checks, rebase their financial position, and get their affairs in order. All these factors are likely to have a lasting and positive impact on wealth preservation.

Paving the way for the future

Preserving wealth for one or more lifetimes requires long-term, strategic thinking. With the largest intergenerational wealth transfer on the horizon, there has never been a greater need to plan how future generations will carry on their families’ legacies, preserving not only wealth but also values that have the power to stand the test of time and create positive impact.

Philanthropy is important for families that wish to have a purpose and align their values with their wealth, by focusing on one or various sectors such as conservation, the environment, wealth inequality, or culture. In particular, in light of the pandemic, the desire to use wealth to support those less fortunate may have become even more relevant.

When family businesses run their course

Some inheritors are expected to manage not just cash but family businesses too. For families whose primary source of wealth has been a family-run business, it’s prudent to consider whether this business is the best reserve of wealth going forward.

To preserve one’s lifestyle, it might be necessary to extract capital from the business or sell — fully or partially — to ensure adequate cash flow. If pursuing the family business makes sense, and if the next generation is unwilling or unsuited to taking the reins, seeking external leadership such as a CEO may be appropriate.

Giving the next generation a fighting chance

Just like markets, family dynamics are hard to predict, so it’s just as important to hedge against potential family disputes as it is against global events.

When it comes to wealth erosion, there’s truth in the adage “shirtsleeves to shirtsleeves in three generations”. More often than not, future custodians of wealth need guidance on how to preserve what their elders have accumulated. There are many steps families can take, but some are more important than others.

Steps to preserving wealth

Great fortunes are often lifetimes in the making, so it stands to reason that one would want to preserve this wealth long into the future.

• Encourage open dialogue: Some things in life are difficult to discuss, such as death, divorce, and remarriage. Still, they are relevant for wealth preservation. Additionally, in cases where large-scale wealth generation has ceased, future generations may need to adjust their lifestyle as funds become diluted through inheritance. This sort of dilution is close to impossible to offset through investment strategies, so getting a realistic grip on what’s in store by involving all family members is the only way forward.
  
  
• Be open to different views and values: More and more we see upcoming generations driven by different values. Younger family members are increasingly interested in making a positive social impact, for example through philanthropy or investments focused on environmental, social, and corporate governance topics. Wealth preservation then becomes a discussion about values and family legacy. Often, two to three generations are involved and this could lead to conflict if not handled delicately.
  
  
• Professionalise your wealth management:  A strong family governance framework can go a long way towards professionalising a family’s approach to managing its wealth — for example, through family charters, councils, or a wealth education programme. A clear succession strategy is also imperative, taking into consideration wealth structures such as trusts and foundations, wills, letters of wishes, and powers of attorney, depending on your jurisdiction.
  
  
• Keep taxation top of mind: Managing one’s tax situation is a cornerstone of wealth preservation — for example, understanding the intricacies of inheritance tax, particularly where multiple jurisdictions are involved.
  
  
• Build family expertise to tackle complexity: As shown in the 2020 Julius Baer Family Barometer, complexity is on the rise for global families. It has therefore never been more essential for families to have access to expertise. It’s not uncommon to see family offices form organically around families, including legal, taxation, wealth planning, and investment specialists, not to mention doctors and concierge services.

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For more information, visit www.juliusbaer.com.

Bank Julius Baer & Co. Ltd.
Johannesburg Representative Office
Nelson Mandela Square
West Tower, 2nd Floor
Maude Street, Sandton
Johannesburg, 2146

Phone: +27(10)133-0403.

This article was paid for by Julius Baer.