The Destructive Power of Family Wealth

A Guide to Succession Planning, Asset Protection, Taxation and Wealth Management

Philip Marcovici

• Publisher: Wiley
• Year: 2016
• ISBN:
  9781119327547
• Edition: 1
• Topic: Business
• Subtopic: Finance
• Index: Business

Wealth owners are responsible for more than just assets

The Destructive Power of Family Wealth offers thoughtful, holistic planning to ensure that your wealth remains a positive force for your family. While today's families have become global and the world has become smaller and more mobile, we have not yet become immune to the problems wealth poses to the family unit. This book provides authoritative guidance on family wealth management, with an emphasis on both family and wealth. Global taxation regimes, changing bank secrecy laws, asset protection and other critical issues are examined in depth to assist wealth owners in planning, and the discussion includes details on the essential tools that aid in the execution of any wealth management strategy. More than a simple financial planning guide, this book also delves into the psychology of wealth, and the effect it has on different family members; wealth destroys families every day, and smart management means maintaining the health of the family as much as it means maintaining and expanding wealth.

Family wealth brings advantages, but it also carries a potential for destruction. Wealth owners have a responsibility to their families and to themselves, and this book provides the critical guidance you need to get it right, whether you are part of a wealth-owning family or are an advisor to wealth-owning families.

• Learn how careful planning can prevent family strife
• Protect assets from risks ranging from divorce to political upheaval
• Explore the many tools that facilitate secure wealth management
• Discover how changing global regulations affect wealth
• Understand how private banks and other advisors work
• Uncover challenges faced by the wealth management industry
• Find out how to work with advisors and to manage costs while ensuring efficient and effective outcomes

Families at all levels of wealth are vulnerable to shifting economic climates, evolving regulatory issues, asset threats and more. Any amount of wealth is enough to shatter a family, but deeply intentional planning based on thoughtful consideration is the key to keeping destructive forces at bay. The Destructive Power of Family Wealth provides expert guidance and a fresh perspective to help you maintain both family and wealth.

For those in the wealth management industry and for other advisors to wealth-owning families, The Destructive Power of Family Wealth contains insight on the needs of today's wealth-owning families, ways in which the tools of wealth planning address those needs and guidance on what it takes to be a successful, trusted family advisor.

Chapter 1
Any Amount of Wealth is Enough to Destroy a Family

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The Chadha Brothers – Could Thoughtful Succession Planning Have Avoided Their Deaths?

In November 2012, two brothers, Ponty and Hardeep Chadha, were shot and killed in a fierce gun battle at one of their family farmhouses in Chhatarpur, Delhi, in the Indian countryside. Kulwant Chadha, Ponty and Hardeep's father, had recently died without having left much clarity regarding how significant family business and personal assets were to pass to the next generation.

Accompanied by their bodyguards, Ponty and Hardeep were arguing over their inheritance and a settlement that had been brokered by their mother. The brothers were obsessed about a particular family farmhouse that their father had left to Hardeep. Ponty, the eldest son, had contributed hugely to the family business and believed he deserved the property. Hardeep felt that he had not only been bequeathed the farmhouse by his father, but that the overall deal on his father's estate brokered by his mother gave him too little.

For a family reported to have assets worth more than US$10 billion, it would be hard to imagine that Ponty and Hardeep's father had ever dreamed that his sons would die in a gun battle over an asset of relatively irrelevant value.

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Jessica Schrader – Do We Need to Do Our Planning Much Earlier?

Jessica Schrader made a will in 1990 leaving her home, Southend Farm House in Essex, England, to her two sons. At her death at the age of 98, the house was worth just under US$500,000. Two years before Jessica died, at age 96, she made a new will leaving the house entirely to her older son, Nick.

A court dispute between the brothers resulted. With legal fees of close to US$170,000, Nick lost the battle, with the court reinstating Jessica Schrader's earlier will leaving the house to both of her sons in equal shares. The judge considered the bad feelings between the brothers, and Nick's perception that his parents had favored his brother Bill. Aggressive and violent, Nick had been jailed for assault, and was viewed as having exerted undue influence on his elderly mother, whom he had been caring for on a full-time basis, prior to her death.

One can imagine Jessica Schrader, in her 90s, being pressured into changing her will by her primary caregiver, her son Nick. Are only millionaires and billionaires at risk of having wealth destroy their lives and their families?

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Nina Wang – Why it is Critical to Plan for the Worst, While Hoping for the Best

Nina Wang was a larger-than-life character and, at the time of her death in 2007, Asia's wealthiest woman, with assets of over US$4 billion. Her husband, Teddy Wang, from whom she derived her wealth, had been kidnapped twice, and was never found after his second kidnapping in 1990. Disputes over Teddy Wang's wills made front-page news. A first will divided the estate between Teddy Wang's father, who had started the family business, and Nina. A second will left everything to Teddy Wang's father, and was ostensibly put in place after Teddy found out about an affair Nina was having. A third will, hotly disputed as being a forgery orchestrated by Nina, stated that Teddy had “one life and one love” and purported to leave everything to Nina.

A lower court found Teddy Wang's third will to have been a forgery, and suggested that Nina had been responsible for its creation. On appeal to Hong Kong's highest court, the third will was found to be valid, and Nina escaped the charge of forgery and ended up with Teddy's entire estate.

Nina died in 2007 also leaving a messy estate. Her Fung Shui master, Tony Chan, who was having an affair with the much-older Nina, presented a will suggesting that Nina left everything to him, contrary to what was stated in an earlier will executed by Nina, which left her estate to a family charitable foundation. After a long period of litigation, the will Tony Chan presented was found to have been forged, and the charitable foundation was determined to be the proper beneficiary of Nina's estate.

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Jonathan Griffin – An Extreme Example of How Succession Plans Can Affect Family Members

Jonathan Griffin, wearing combat gear, caused thousands of pounds of damage to his brother's farm in Dorset, England. Furious at having been excluded from benefit under his father's will, the family farm having been left only to Jonathan's brother and mother, Jonathan's relationship with his brother, David, was clearly destroyed. Jonathan had worked on his father's farm, and was shocked at his father having left him out of a share, ostensibly for tax reasons.

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Tony Marshall – An Example of the Potentially Dangerous Consequences of the Fact that We All Live Longer and Need New Approaches to Our Succession Plans

Tony Marshall, aged 88, exhausted his last legal appeal against a jail sentence for having defrauded his mother, Brooke Astor, a well-known New York socialite and philanthropist, who died at the age of 105. Tony Marshall was convicted together with one of his mother's lawyers, Francis Morrissey, Jr., who was also disbarred.

Sentenced to prison terms of one to three years, Marshall and Morrissey were found to have schemed together to siphon funds from Brooke Astor and alter her will, after she was diagnosed as having dementia and suffering from diminished capacity.

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Uncle Law – Lust? Use Caution

Uncle Law, a Hong Kong resident, was 79 when he met a young woman from mainland China in Hunan Province. They soon married and had a son. Six months after mother and son received residence permits to move to Hong Kong, the couple divorced and Uncle Law lost custody of his son and his tiny, 150-square-meter apartment. Left with nothing, Uncle Law had been humiliated and abused by his wife who complained of his impotence and lack of financial resources in front of friends and family.

The Hong Kong Agency Against Abuse, a welfare service for the elderly, reported that as many as 100 Hong Kong elderly men had sought their help in 2013 as a result of problems with much younger wives from the mainland who had apparently entrapped them into marriage to obtain residence permits and their modest homes.

Roy Lam Man-chiu of the Agency Against Abuse was quoted as saying “Lust? Use Caution.”

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Gore Vidal – The Importance of Considering Alternative Beneficiaries Early on in the Planning Process

The author Gore Vidal died in 2012 at the age of 86. In his original will, Vidal had left his entire estate (reportedly worth well over US$40 million when future royalties from his books were included) to his long-time partner, Howard Austen, who ended up pre-deceasing Vidal, dying in 2003. Vidal changed his will in 2011, leaving his entire estate to Harvard University, a school he was apparently accepted into but which he never attended. His surviving family members, some of whom challenged the will, received nothing. Vidal's long-time housekeeper and chef, Norberto Nierras, also received nothing. He was reported as having said: “I'm 60 years old and had planned to stay with Mr. Vidal until I retired. I will have to go back to the Philippines, I cannot afford to stay in America. I didn't expect he'd leave me anything – other people are surprised he didn't. If Mr. Vidal did leave me something, I would be very, very grateful as it would help with my retirement in the Philippines, as I have a small pension.”

Vidal, in his later years, was in a seriously declined physical and mental state, and according to members of his family, was suffering from dementia and other maladies with symptoms that included confusion and hallucinations.

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The Maharajah of Faridkot – Can You Trust Your Trustees?

The Maharajah of Faridkot was depressed after the death of his only son. When he died a short time after, his daughters, the princesses, were stunned to learn that a will their father had ostensibly signed left them virtually nothing. The princesses had expected that the Maharajah would leave them his lands, forts, palaces, jewelry, precious stones, classic cars, and other assets worth several billion US dollars.

All of the assets of the Maharajah were apparently left to a group of trustees, with the eldest daughter of the Maharajah, the child who would have been thought to receive the largest portion of his estate, receiving nothing under the trust. Similarly, each of the Maharajah's widow and surviving mother received nothing under the trust arrangements. The youngest princesses, under the trusts, received a monthly allowance of US$20 and US$18, respectively.

Finally, after lengthy litigation, and by then in their 80s, the Maharajah's daughters succeeded in showing that the will had been forged by their father's “trusted” aides, who named themselves, together with the Maharajah's lawyers, officials, and other servants, as “trustees” of the Maharajah's estate, taking control of his wealth. In the 20 years of litigation, one of the princesses had already died, and part of the Maharajah's estate had been squandered by his self-appointed trustees who threatened to continue the case, claiming that the will putting them in control of the Maharajah's wealth was valid.

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These are a few true stories among, sadly, many reported in the press on a regular basis.

In the case of Jessica Schrader, pressured into changing her will at the age of 96, a house worth less than US$500,000 was what destroyed her family and her last years. Is it not a reality that those with less to pass on to the next generation have, in today's world, an even greater responsibility to ensure that what they do is not destructive? A small family business, a nest egg of savings, a piece of jewelry… all can have enormous importance to the younger generation and apart from value can carry with them perceived “messages” from the older generation that, if not sensitively handled, can leave generations of unhappiness. But did Jessica Schrader do anything wrong, leaving her home to her two sons in equal shares under her will? How could she have avoided coming under pressure to change things at a late stage in her life? Would an earlier transfer of the house to her sons, with Jessica keeping the right to live in it for her lifetime, have been safer?

The Chadhas had billions; the Schraders a few hundred thousand in the value of their mother's house. In both cases, families and relationships destroyed. For every family dispute we read about, many, many more take place outside the press. And how many situations have arisen where assets have been stolen, diverted, misplaced, or lost and no one in the family ever even found out?

If one child is a caregiver to an elderly parent and the other is not, is the caregiver entitled to a greater share of the inheritance? Are they able to abuse a position of trust and influence their parent into destroying family relationships, as occurred when Nick Schrader unlawfully influenced his mother to change her will?

The Nina Wang case fascinated Hong Kong and the world as it unfolded over the years. The press reported the kidnappings of Teddy Wang, the second of which was even rumored to have been engineered by Nina herself. Nina's alleged extra-marital affair, which had resulted in Teddy excluding her from benefitting under his will, also became a topic of gossip. But stripping away the dramatic elements of the story leaves a number of clear questions. What did Teddy Wang ultimately want in terms of where the family business he owned, which had been started by his father, would go in the event of his death? Were there steps Teddy, or perhaps better, his own father, could have taken to keep the business away from Nina if that was their intention?

Nina ended up being a good steward of the business after Teddy's death. Despite her eccentricity, the value of the business grew to over US$4 billion by the time she passed away. But could she have also considered succession plans that would have made it less of a risk that her Fung Shui master and companion would get it all by forging her signature on a will purporting to leave everything to him? As it...