Photo: iStockphoto
Photo: iStockphoto

Put a framework in place for transfer of wealth

Succession planning gives a framework for transfer of assets to businesses and individuals

Businesses getting entangled in family war is not new. To add to the list is also the tussle that surfaces between the promoters and professionals who are now handed the power to run the company. This year we saw both. 

In August, Raymond Group’s Singhania family made headlines when Vijaypat Singhania, 78, chairman emeritus, Raymond, took his younger son Gautam and others to court over a real estate dispute. Gautam is the current chairman and managing director of Raymond. In 2015, Vijaypat had transferred his 37% stake in Raymond worth over Rs1,000 crore to Gautam. Raymond was part of JK Group founded by Lala Juggilal Singhania and Lala Kamlapat Singhania in 1918. It split into three, headed by Gaur Hari Singhania in Kanpur, Hari Shankar Singhania in Delhi and Vijaypat leading Raymond in Mumbai. When Vijaypat transferred his stake to Gautam as a gift, his grandchildren from his elder son sued him and Raymond, saying he had no authority to sign away their ancestral rights. In the same month, Infosys Ltd, a bluechip company, saw its managing director and chief executive Vishal Sikka exit, bringing the focus on promoter versus outsider debate. Experts blame the differences between the top management and some founders for Sikka’s exit. 

There are more such examples in billionaire as well as millionaire families. Last year, Priya Vandrevala, daughter of Niranjan Hiranandani, took her father and brother Darshan Hiranandani to court over the breach of a business agreement. Niranjan is chairman and managing director of Mumbai-based real estate company Hiranandani Group. Even the Reliance, Tata and Bajaj families have had feuds. For instance, when one of the brothers of the Bajaj family wanted to go his separate way in 2001, the resultant tiff in the family lasted till 2008.

The reason for such tussles is simple: not putting in place a proper succession plan. Transfer of wealth to the next generation has been an uncomfortable journey for many. In most cases, it is also a problem of transfer of power. Succession planning gives a framework for transfer of assets for businesses and individuals. “Most of the businesses in India are owned by family and the founder keeps running the business till the age of 70-75. By that time their children are in their mid-40s and there may be multiple families or siblings. Hence, leading to multiple claimants to the chair," says Mahesh Singhi, managing director, Singhi Advisors, a investment banking firm.

Experts says that ultra-high-net-worth individuals (ultra HNIs) are now taking more interest in succession planning. “We see a vast change from 2005 to 2017. As years have passed, we see a big difference in the clients we meet. They want to proactively do structuring and put wills in place. There have been situations of large families where disputes have happened and estates have got stuck for the want of appropriate probate. They have seen tax implications coming up. In view of these situations, the clients have become aware of these situations and want to create trust structure. Ultra HNIs and HNIs want to put in place a succession-planning vehicle or at least, have a will in place if not anything else," says Gautami Gavankar, executive director at Kotak Mahindra Trusteeship Services Ltd.

For business families, succession planning is a complex process. “For ultra HNIs, it is not just one immovable property and some financial assets. If it is a business family, there are business assets, shareholding of companies, among others," says Gavankar. More and more businesses are realizing the importance of succession planning during the lifetime of the patriarch and are doing it proactively. “Awareness has increased and there has been discussion and deliberation on whether estate duty will be reintroduced in Indian context. All such news make clients look at these aspects proactively," says Gavankar. Estate duty is a tax on assets left behind by a person upon his death. In India, it was introduced in 1953 and abolished in 1985.

Does that mean that families should discuss succession planning together? Wealth managers say they have come across situations where clients sit together with their next generation to look at the kind of structures they want to put in place. As the complexities have increased, it has led to the process of family business succession plan. “Nowadays a lot of business families—already second or third generation—are involved in business. Hence, companies are also looking at adopting family business succession. Here you sit with the children, their spouses and grandchildren," says Gavankar.

To being with, succession planning starts with a will, which can be challenged in certain cases. Then there are trust vehicles that can be adopted by the family. 

Disclaimer: Reliance Group companies have sued HT Media Ltd, Mint’s publisher, and nine others in the Bombay high court over a 2 October 2014 front-page story that they have disputed. HT Media is contesting the case.

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