|FUTURE HEIRS AND THEIR SAFETY|
WEALTH DISTRIBUTION AND SUCCESSION PLANNING
HOW MLG GROUP STRUCTURES ARAB BUSINESS EMPIRES AND ADVISES BUSINESS OWNERS TO SAFEGUARD THEIR WEALTH FOR THE NEXT GENERATION.
WHEN DID YOU GET INTO THE BUSINESS OF SUCCESSION PLANNING AND WHY?
Since I was very young, on the one hand I was attracted to history in particular biographies, and yet on the other hand, I always enjoyed strategizing and playing strategy games – I won the Middle East school championship in chess at the age of 12. With such interests, I realized that I can convert my passion into a business; contrary to the common belief many people have, whereas they doubt themselves and the ability to convert their passion and unique ability into something of a profitable business. Another influence was my late father, he was a respected judge in Lebanon and many families used to come to our house in the afternoon to seek his advice. He always expressed his sorrow when he saw the ferocity of ‘family-feuds’ and ‘destruction of solid legacies’ due to the lack of communication and long-term planning. This childhood exposure drove me to make it my life mission to assist families maintain their legacies which previous generations worked very hard to build.
HOW DO YOU ADVISE OWNERS AND STAKEHOLDERS OF BUSINESS CONGLOMERATES ON SUCCESSION PLANNING?
We start the process with an exercise to understand their vision from a threefold perspective-personal, family, and business. Next, we get retained to re-organize the estate of the family which is usually a paperwork nightmare; yet always creating a sense of comfort and optimism once completed. We follow that by creating a proper structure to hold the estate worldwide subject to tax, financial, and legal consideration. Finally, in case of a family operated business, we create the ‘Family Governance’ system –such as Family Constitution, Family Council, Next Generation programs, Family Assembly and Family Office.
HOW DO YOU STREAMLINE THE PROCESS FOR SHAREHOLDERS AND FAMILY MEMBERS? CAN YOU ELABORATE ON A SUCCESSION CASE?
From the outside the whole succession process seems complicated and cumbersome. Over the years, we have developed a unique in-house process which literally simplifies family succession. To give you an example, for instance, I was approached by a family patriarch, who had contracted multiple marriages and had children from those respective marriages. He was concerned about the age gap between the children from the first marriage and the third one. We looked at various scenarios in case the patriarch passed away, and his concerns were confirmed. There was a serious risk that the eldest son might overrun his younger step-siblings. So we at MLG, set-up a Foundation and sold the shares of the holding company to the Foundation; whereby the Foundation became the legal owner of the assets. At the same time, we also took care of putting in place a robust foundation regulation in order to secure the best interests of all the heirs.
DO YOU GO ABOUT SUCCESSION PLANNING AND WEALTH DISTRIBUTION FROM A SHARIAH OR NON-SHARIAH PERSPECTIVE? WHAT ARE SOME OF THE CHALLENGES YOU COME ACROSS?
There is a misconception about the issue of Islamic Sharia distribution, from both angles, that is families who wish to apply it and those you try to circumvent it. I would like to point out some of the biggest challenges that threaten a smooth succession transition. For example, lack of transparency, lack of communication and lastly having ownership in personal names versus ownership via structure are some of the obstacles that can threaten a smooth transition to the right heir. The last point is extremely important. When ownership is in a personal name, it gets fragmented into smaller ownership denominations upon death. I would like to explain further that if a property is fully owned by one person (1st generation) today, it will have various owners (spouse, parents, children) upon the death of the owner. If this is left unattended as it usually happens in the Arab World, by the time it reaches the 3rd generation you might have over 20 heirs scattered all over the globe each owning fractions of this property; and good luck if you can bring them all together to decide and take action! That is why you see a lot of wealth destruction around the Arab World – properties in prime locations have been left unattended due to personal ownership rather than structured ownership.
GIVEN THESE CHALLENGING CIRCUMSTANCES, WHAT IS YOUR ADVICE?
The key message here is long-term planning of ownership. The same applies to family-owned businesses. However, unlike property, businesses are less resilient to survive for a long-term without proper ownership structures and long-term planning. Only 5% of Middle Eastern companies survive to the third generation. Usually, if the succession is not organized and structured well, the company can collapse within few years from the death of its founder or the dominant family member.
CAN YOU TELL ME MORE ABOUT PLANNING FOR UNFORESEEN EVENTUALITIES?
Everyday enterprises in the Middle East face challenges – change in regulation, foreign and local competition as well as political instability. The last thing they need is friction within their shareholder structure. Accordingly, we assist family businesses, to mitigate this risk by reorganizing the ownership structure and aligning it with the family and business vision, and at the same time respecting values and creating communication mediums. These mediums could be Family Assemblies and Councils – and in certain cases setting up a Single Family Office.
SECOND CITIZENSHIP IS A CRUCIAL FACTOR IN DETERMINING RESIDENCY AND ESTATE PLANNING? CAN YOU HIGHLIGHT SOME PERSPECTIVES?
Part of proper succession planning is residency planning – which is the modus operandi in Europe for tax purposes. Deemed as resident in most non-GCC countries, such cases will typically have dual tax implications on the individual and possibly corporate side. So in 2009, we started offering ‘residency’ and ‘citizenship-by-investment’ services to families in the Middle East. Given that individual tax is almost non-existent in the Middle East, the residency and second citizenship did not receive a lot of positive feedback. Strangely, the paradigm shifted in 2011 when the Arab Spring erupted and we were faced in our business to look into ‘nationality risk’. Literally overnight, through a vote of a simple UN resolution, well to do families struggled to move from one country to another or even open a simple back account. As a result, attaining a second or even third citizenship became a must for the survival of the family business and welfare of the family at large. From a client perspective, the paperwork for setting up a foundation or doing a second citizenship is almost identical. The team at MLG are trained to handle these cases and we foresee a huge demand on second citizenship throughout the Middle East in the next 10 years.
About Karim Ghandour
Karim is the Founder and Managing director of MoneyLine Group, holding company of MLG Family Office, established in 2004. MLG Family Office is a boutique family estate planning firm, the first of its kind in the region, offering both online and face-to-face personal financial coaching to meet the changing needs of a globally mobile, often expatriate clientele. He works with clients in Lebanon, Saudi Arabia, Jordan and the UAE. He is fluent in both English and Arabic and offers services tailored to meet either Shari’a compliant or non- Shari’a compliant client needs. As one of the very few Arabic speaking Family Succession Strategists in the world, Karim draws on his own passion to guide individuals and family businesses through their legacy planning and long-term wealth management.