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Business News/ Money / Personal Finance/  Financial Privacy and Transparency: Delicate balance for successful estate planning
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Financial Privacy and Transparency: Delicate balance for successful estate planning

Transparency is a tool that needs to be used appropriately; the essence is in deciding what is an ‘appropriate’ balance that will not only build trust and preserve wealth but also enable creating a “Legacy”.

Families too grapple with the question of how much financial information to share, when to share and with whom. (MINT_PRINT)Premium
Families too grapple with the question of how much financial information to share, when to share and with whom. (MINT_PRINT)

Secrecy holds its revered place in our traditions and when it comes to business & wealth, individuals are often found to be reluctant to share information even within the family. This may be due to competitiveness, wariness, the fear of damaging relationships or causing conflict, or simply a belief that more transparency will bring more accountability. A taken-for-granted attitude towards wealth can impact the motivation of family members.

Happy folks and families are those who individually and cooperatively work at building that trust, and transparency is a builder of trust. Transparency is a tool that needs to be used appropriately; the essence is in deciding what is an ‘appropriate’ balance that will not only build trust and preserve wealth but also enable creating a “Legacy".

Families too grapple with the question of how much financial information to share, when to share and with whom. This urge toward privacy resonates deeply with the Indian culture of safeguarding wealth. A testament to this ethos dates back to the enigmatic Padmanabhaswamy Temple. Renowned not only for its spiritual significance but also for its secretive treasures, this ancient temple exemplifies India's longstanding tradition of protecting wealth. The true scale of these hidden riches of the temple remains an enduring mystery even for insiders, much like the wealth of many Indian families.

Indian families, with their deeply rooted culture, often tread a delicate path between discretion and openness when addressing matters of wealth and inheritance, much similar to what they deal with on matters such as personal relationships.

More often, leaders who earn or manage wealth desire financial privacy as a protective measure. This is to shield, as per their perspective, younger generations from the complexities of wealth or the larger family from developing biases or conflicts based on the powers of wealth.

Yet, with the advent of modernity, there emerges a distinct pull towards transparency within a family on all critical matters. Younger members, enlightened by their education and global perspectives, ardently desire to comprehend their financial position and the legacy they stand to inherit. Likewise, passive members not directly involved in the business seek insight into the family's financial direction. They aim to understand how financial choices and inheritances shape their legacy, cater to their lifestyle, and enable their individual pursuits. This awareness makes them informed stakeholders and contributors, even indirectly.

Open conversations about wealth can build mutual understanding and alignment. If everyone is on the same page, there is less room for confusion or disputes that cause conflicts.

Nonetheless, there is value in discretion. Not everyone within the family (and at times, even some outsiders) needs to know the larger picture.

By striking the right balance, families tread a delicate tightrope between maintaining discretion and embracing transparency.

The Need for Openness

As the next generation takes on more responsibilities in the family's financial matters, transparency becomes pivotal and not a superficial expectation.

Open dialogues within families foster an environment of trust by reducing misunderstandings and ensuring every member feels informed and acknowledged. This creates a cohesive environment where family members can actively contribute to the growth of family wealth by harnessing their education and expertise.

Awareness about the family's assets, liabilities, and the mechanism for inheritance ensures members don’t feel left guessing or marginalised, promoting smoother transitions.

Furthermore, transparent discussions about the family's financial health synchronise everyone's aspirations, laying the foundation for a unified family vision crucial for fostering legacy and collective growth.

Strategies for a Balanced Approach

Engaging in open conversations dispels myths, aligns expectations and ensures everyone feels acknowledged and included.

While it is not about revealing every financial nuance (which can be shared tailor based on roles and maturity), it is essential to give everyone a clear relevant picture.

Legal structures like trusts and wills can be effective tools in this context. They offer clarity, set boundaries, and ensure that assets are managed and inherited as per the wishes, all while maintaining a level of discretion and limited disclosure.

Additionally, structured family financial meetings, held periodically, serve as a platform to discuss achieved milestones, address potential concerns, and lay down future financial objectives.

Finally, with the potential of external threats, one must be vigilant against entities aiming to capitalise on financial disclosures, thus limiting undue information sharing with outsiders.

Way forward

Estate planning, particularly in the Indian context is not limited to ownership of assets; it is a profound interplay of traditions, emotions, and evolving perspectives. Opaque structures of holding wealth, while historically prevalent, are now being reevaluated for their feasibility.

Simple, clear, and transparent wealth-holding structures are becoming the new paradigm, fostering smoother transitions, and reducing complexities.

Staying abreast of legal and regulatory requirements is also paramount. On this front, seeking expert guidance can often provide added clarity and assurance.

A well-articulated succession and estate plan, founded on clarity and inclusivity, goes beyond material assets. It is a blueprint to fortify family bonds and ensure the legacy and shared values are enduringly preserved for generations to come.

Ultimately, this delicate act of balancing privacy with transparency enabled by trusted advisors or a family office becomes a cornerstone in preserving both the family's assets and its legacy.

 

Suraj Malik is Partner, Legacy Growth & Ankur Pahuja is also Partner, Legacy Growth.

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Financial planning for geopolitical crisis.  

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Published: 05 Oct 2023, 01:01 PM IST
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