Lifetime Plan to Family Wealth - Part 3

Establishing Philosophies in Lifetime Plan

There are typically two main attitudes family members may adopt with regard to inherited wealth.

On the one hand, there are those who view the inheritance as something passed on to them for their personal use, and are comfortable with the fact that the financial legacy may end with them. And then there are others who hold the view that the inheritance is something to be enlarged to pass on to future generations.

Both views can co-exist, as long as they are clarified from the beginning and a balanced approach is adopted.

A family vision should therefore be first established to outline the family's hopes, goals and expectations in preserving family capital.

Specific guiding principles in the lifetime plan should also be highlighted, such as never investing in casino or tobacco shares.

More important is the next step - getting family members to commit to this "promise", since it serves as a foundation for related decisions and actions.

Moving forward, he suggests that family wealth can be divided into different "buckets", with some money considered as expendable inheritance and the remainder as family funds, which should be safeguarded.

Separate investment portfolios with different strategies and distribution policies should then be established for the two "buckets".

For example, the portfolio designed for wealth preservation may have a more conservative approach, and be characterised by low liquidity, with a selection of lower-risk investments and a higher proportion of inflation-resistant assets. Such a portfolio should also follow a longer-term investment horizon.

That said, a limit should also be established on the amount of funds withdrawn for personal use. Experts say a disciplined, sustainable rate of withdrawal is about 2-4 per cent of a family's assets.