thursday, 26 march of 2020

How to implement an efficient perpetuation of wealth?

Filipe Arantes e Renato Tavares

Creation and accumulation of wealth it's a hard, tough and long journey. Once reached, another challenge comes out, its preservation and perpetuation, a task harder than the origination of wealth.

This happens because the construction of wealth doesn't necessarily mean holding liquid assets or cash investments. Moreover, the wealth is the result of building a successful enterprise, with multiple types of investments, and its profitability and survival rely on good management, market strategies and wise utilization of its profitability.

The founder, the person behind the idealization of all this conglomerate, takes years, even decades, to reach the level of maturity allowing him to enjoy the fruits of the hard work. However, when the time to pass the baton arrives, new challenges comes together.

How to implement the transfer of the assets to the heirs? Are the heirs ready to assume the business? Do the assets have to be transfer immediately or in an organized manner? Did the heirs already got married? How is the relationship with the heirs’ consorts? In which manner the marital regime of the heirs can influence those decisions? What happens if a heir pass away before the transition is completed? And if someone happens to divorce?1

The questions above, in a wealth perpetuation planning, are just the tip of the iceberg. One of the great challenges is how to perpetuate something that's finite and avoid – from a legal standing of view – the disintegration of the assets?

The process of wealth perpetuation, among its many faces, consists in the administration of the family assets, allowing to multiple and successive generations use it in a rationalized and efficient manner, implementing legal, economic and organizational strategies. All them combined can leave to a successful perpetuation of wealth.

However, despite it seems something easy at a first glance, most families fail trying to achieve the so desire perpetuation. According with researches, 85%2 of estate planning fail due to the lack of communication and trust within the family, together with absence of preparation of the heirs to manage the family business, followed by tax and legal problems, among others.

In the face of all this questions and difficulties, the preparation for the perpetuation of wealth must happen as soon as possible – preferably when there's no problems – in a manner that the implementation of the process happens in a structure coordinate pace.

Nevertheless, some legal challenges arise, especially when dealing with the transfer of the assets.

The inheritance is transferred with the dead, an automatic event despite of the heirs will – the heir can resign of course but the act of resignation can only be made after the “legal transfer of the estate”. Moreover, it's not possible – at a simplistic view - avoid, limit or even control how the heir – and now owner of the assets – will use, dispose, spend, or sell the assets.

Putting in another way, how to control the utilization of an asset after the dead of its owner?

Among the usual legal options available in Brazil, the usufruct right is the most common, however its rights extinguishe with the dead. Another option, the fideicommissum (fideicomisso), allows one to add provisions in its last will allocating part of its estate to a person not yet conceived at the time of the death, again, this option doesn't guarantee the perpetuation – since the final transference of the asset will happen together with the control of the asset, and there're limitations imposed by law while transferring the legal share of the estate “owned” by the legal heirs. In a nutshell, once the estate is finally transferred (and all legal property rights as well) there's no control over it.

Corporate structures can also be used, tied up with contractual mechanism (shareholder and/or other types of partner agreements) and a will, regulating the family relationship and distribution of assets, but even again, the death of the holder of the assets, with its immediately legal consequence – transfer of the estate – impair the ability to create legal structures of wealth perpetuation.

Sometimes, investment funds, with professional managers, can be used as an option to address this issue.

Additionally, it's possible to create complex and sophisticate legal mechanism, associate with offshore structures, in order to overcome the legal limitations imposed by the system that limits the ability to control and conduct the use of the family assets, associate with a strong and well design family corporate governance, able to mitigate the failure to implement the perpetuation of wealth.

In order to have an efficient perpetuation of wealth, the family must avoid the use of ready-made structures of “estate planning”, once each family has its own particularities and the use of standardized options it’s not the best way to implement a successful “wealth perpetuation”.

The doubts and risks are numerous, so are the solutions and options for those who seek and prepare wealth perpetuation mechanisms in a timely manner.


1 Generation to Generation, Kelin E. Gersick, John A. Davis, Maron MacCollom Hamption & Ivan Lansber, Harvard Business Scholl Press.

2 For Love & Money: A Comprehensive Guide to the Successful Generational Transfer of Wealth”. Roy O. Williams, 2010.


*Filipe Arantes is partner at FTA Advogados.

*Renato Tavares is partner at FTA Advogados.

latest of hot topics

subscribe |  contact us |  sponsors |  migalhas in portuguese |  migalhas latinoamérica