THE WEALTH TRANSFER CONUNDRUM

In the Daily Nation a writer has vehemently dedicated her days to narrating to us stories of wealthy individuals who have since passed on and their dependents being overtaken by endless court cases to acquire control and their properties. Names sampled include Moses Mbugua Mwangi, a son of a freedom fighter who among his other assets were 58,000 acres in Laikipia County and 300 acres in Kiambu road whose 3 sons instead of calling for memorial services to eulogize their father, are in a bitter court case with doubts and  accusations flying between them.

The former CEO of Equity Bank the late John Mwangi Kagema whose wife number 4 wishes exhume him so as to confirm to the world (Kenya Legal System) that her child was sired by the late. The former CEO passed only last year on Boxing Day.

What about Mr. Kahama, a man who had the guts to delete his Christian name and replace the same with the name of his empire. He moved to Nairobi in 1982 with bakeries and entertainment ventures as his forte. After his demise his wife Eunice and 3 daughters made prayers to the court to divide what property their husband and father had acquired for them so that they can go their own ways. One of his clubs K1 is estimated to be worth 500Million on the lower side.

On Wednesday our writer presents us with the story of Joseph Musyimi Ndolo: a major General in the Kenya Army who passed on in 1984. He had among other investments 9000 acres in Mwaani Sultan Hamud. Notwithstanding that his 3 wives were on each other’s neck, after his death which came through a tragic accident, a land deal that he was in the process of securing didn’t materialize resulting in more time in the court for his family trying to complete what their provider began. But 5 years after Josiah Kuambulu who had duped him in the land deal also passed away in a road accident. Josiah was also trying to secure a 3000 acre deal which was taken over by the seller and his family didn’t get a meter of the said property as registration has since hit a brick wall.

On Monday our esteemed writer presents us with a story of the former Director of Intelligence who even after his death 11 years ago no peace can be found to the dependents who might as well rent residential apartments next to the courts as they always seem to spend most of their time there.

My question to all fathers is what are you (an investor) doing to ensure that your dependents don’t end up spending most of the assets bequeathed on lawyers and that your estate and family flourishes despite your  demise?

Wealth Vs Ease of parenting

Max Gladwell proposes that money ceases to result in easier parenting past the $75,000 per annum point for the household sampled.

From the above table it can be noted that at the poor level of wealth, parenting is not easy and it is in fact hard. This is due to the fact children barely ate, families didn’t have a place to live and all of which made the parenting difficult.

As a household becomes more rich and approaches the $75K p.a. mark parenting becomes easier. This is because the family can care for the major basic needs: i.e. food, shelter, clothing, school fairly well.

Past the $75K mark no more income can result in making parenting easier. With the basic needs taken care of any extra wealth to the family results in family concerns. It was noted in the study here that either the parent will be unavailable, or that the extra wealth resulted in behavioral changes and appetites in the children that made parenting very difficult. And as the wealth increase the difficulty increased tremendously.

Let’s try Warren Buffett’s view: on deciding what to leave your dependents he sees the sweet spot as “enough money so that they would feel they could do anything, but not so much that they could do nothing.”

Ideas as researched include being clear when writing your will. In the will if you have a grownup who was not your dependent and you wish not to include them in your estate, put it expressly. I.e. name them and indicate that not bequeathing them anything is intentional.

Leave your property in the hands of a trustee for the short term. Before you go screaming and throwing tantrums, kindly be aware from the examples mentioned above that these dependents have never handled the investments left for them and leaving the same to them is tantamount to setting the investment on fire. You may leave your investments with a professional trustee with conditions on payments and lapse of the trust. This ensures that a professional manager manages the resources while according the dependents as named on a periodic or event basis the proceeds minus the trustee fee. Additionally, the making partial regular payments ensures that the receiver can handle the income as and when it is received. If a child who was in university inherits 24Million shillings which is transferred to their account, how will he/she know what to do with the amount considering that the highest amount they ever handled was school fees a measly 50,000/=. This individual does not have the understanding of money and the discipline such amounts require.

One can consider a Long term/ dynasty trust. A dynasty trust, in general, is a long-term, irrevocable trust that is created to transfer wealth from generation to generation, with minimal exposure to taxes. For these dynasty trusts one can set them up before or they can take effect after ones death. Some of the models under dynasty trusts include: One a model to cater for the beneficiary’s medical, school and general maintenance needs. So benefits cannot be received to buy the new F-Pace Jaguar. Second option include a model set up to cater for the large expenses that are concerning their needs e.g. Large medical expenses, wedding expenses, home damages. This acts as a safety.

The third option includes making payments for preset accolades e.g. wedding, graduation, getting children or starting a business. This becomes a driver for the dependents to pursue expected good outcomes so as to receive finances.

Some cultures tend to introduce their dependents to the business or investments earlier on and the provider is able to evaluate them, whether they are taking on the principles of the business. Changes are made to the training of these individuals to ensure that they have a better understanding and regard for the family business. So upon the demise of the provider the dependent is not so far off course in managing the company.

As an investor, I will now proceed to ask you: what do you have as investment to leave to your dependents? How long do you think you have to live? And what are you doing in planning for your demise?

Meanwhile keep grabbing your Daily Nation and be embroiled in the tales of other investors who did not plan accordingly!