Needs of future must be reconciled with traditions of the past

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Scores of Egyptians, Tunisians, Syrians and Libyans are growing very wary about the way they pass money to their heirs as lawlessness descends on their countries and death and violence stalk the streets outside their homes.

An uncomfortable truth emerging from the wreckage of the present crises in the region is that the chaos that persists across much of north Africa and the Middle East creates business for wealth advisers.

Families in the region hope to diversify their investments and businesses with haste as well as to protect assets as their countries descend into chaos, they say.

Many advisers also report that clients, looking to orchestrate their succession plans quickly, now depend on the services of western banks with offices in their region and travel less often to Switzerland to meet bankers.

“Historically, a lot of work went to Switzerland, but that’s not the case any more,” says Liz Taylor, a private client director with RBC Wealth Management. “With all the unrest that’s in the Middle East at the minute, people want to get all their family wealth in a safe haven quickly.”

As is the case elsewhere, the usual way to put aside money for inheritance in Middle Eastern and North African countries is to set up a trust.

Other methods include an informal family governance plan, under which families agree among themselves how to split assets.

Foundations, which share some of the same characteristics as companies, also hold appeal, especially for wealthier families with assets spread around the globe.

The rules for setting up a trust vary. But for practising Muslims, sharia law, the Islamic moral code, places restrictions on how to pass money to the next generation.

Female heirs face discrimination and sons inherit twice what daughters do. And if you set up a trust, this restriction applies to at least two-thirds of an estate.

The one-third of an estate that can be “freely disposed of” using a will, meanwhile, cannot be given to an heir who is receiving a distribution under sharia law, notes Catherine Grum, a director with Barclays Wealth.

There are ways to overcome the bias, however.

A couple with a disabled daughter, for example, can use a trust structure or lifetime gifts to make sure she receives a greater proportion of income from an estate than her brothers, for example.

And, if you are looking to award the same inheritance to a son and a daughter, you can give the assets to them while alive.

Taylor of RBC Wealth Management explains that the reason for the difference in the payouts to men and women is rooted in history. “There was always an expectation that the brother would look after the family. So, this fractional entitlement isn’t an arbitrary sort of figure.”

Interpretations of sharia law when it is applied to a trust vary widely. Conservative Muslims might want to make sure the investments their trusts control do not involve alcohol or gambling, for example, considerations that might be less important for others.

“What sharia means to each individual is really very personal,” says Grum. “Every family will have their own concept of what it means for them to be sharia-compliant. You have to make sure you are aware of what that is.”

Trusts are always set up outside north Africa and the Middle East, usually in the UK, the US or the Channel Islands. A trustee is appointed to oversee its direction.

Sharia laws can complicate passing wealth on in other ways as well, however. In many cases that involve rigid adherence to the rules, a husband writing a will would expect just one-eighth of his estate to be given to his wife and the remainder to his heirs, according to Grum.

The complications that come with making trusts sharia-compliant make it important to be sure families agree on who will inherit what early on.

Typically, when a practising Muslim dies, under sharia law, their debts are paid and then a sharia scholar is called in to make sure the estate and its passing to the next generation is compliant.

“It’s a very personal thing,” explains Grum. “When you pass, your relatives are there to look at the assets that you own. Then, they go and obtain a sharia ruling about what proportion each heir should receive.”

If a family is traditional, an estate tends to be passed down to the children of the deceased and not to the children’s spouses or their grandchildren.

More unusual caveats can also apply. In a family of three brothers, one of whom has died, the children of the deceased brother, typically, will not inherit money.

Taylor says she works with families and the appointed scholar to write a so-called family constitution and a set of memorandums and articles of association to make sure assets are passed in keeping with the wishes of everyone involved.

She points out that trusts are usually “very flexible”. The way they are structured and their cost depend largely on the sort of assets held in a family’s portfolio. “If we were looking at bank deposits or investment portfolios, the pricing is hugely different than if we were helping them look at property,” she says.

The idea of setting up foundations in Jersey and other offshore locales is also gaining an audience among Middle Eastern families with investments spread across various countries, advisers report.

They hold appeal for the wealthy as they combine the benefits of a trust with those of a company. While no shareholders take ownership of a foundation, a board tends to control its direction. Another perk is that a foundation has its own “legal personality” and it can own property.

For Middle Easterners and North Africans, however, trusts remain the preferred option in most cases. And Grum notes that many of her clients regard the application of sharia rules to the portfolios they pass along as a “positive” benefit.

“The rules are designed to protect the family,” she concludes. “That’s how they are viewed.”

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