Expert Series: The Importance of Estate Planning in the UAE

The UAE has become a popular destination for the high-net-worth individuals (HNWI) to relocate their wealth.?

Despite that, a study conducted by the independent Swiss banking group, Lombard Odier, found that 61% of HNWI in the UAE have not made any estate or tax planning arrangements for their children. This was due to the complexities and lack of awareness of estate planning within the HNWI in the UAE.??

Doo Wealth UAE spoke with our Sales Manager, Mr. Binil Joseph, to dive deep into the importance of estate planning in the UAE.?

(1) What is estate planning, and why is it important to business owners or HNWI to have an estate plan?

A simple definition of estate planning is that it is an act of determining how your assets, investments, and money will be managed or distributed after you pass away.??

Most of the people think that once a will is written and taxes sorted out, they are done with their estate planning, but there’s more to that.??

When creating an estate plan, you may want to consider the following factors:?

(a) The inheritance.?

(b) Assets’ value depreciation.?

(c) Philanthropic initiatives.?

(d) Your retirement.?

(e) Distribution of assets.?

(f) Tax-free income.?

These factors also underscore the importance of estate planning in the UAE, whereby it is to ensure the financial security of your retirement life and your future generations, the fair distribution of assets, and avoid disputes amongst family members during your passing.?

As for business owners, they are usually asset-rich but cash-poor. Therefore, having an estate plan is crucial to ensure the continuity of their businesses after they die.?

(2) How does life insurance play a role in estate planning??

Life insurance serves all of the factors that were previously mentioned, and it provides a guaranteed payout. This means that after you die, the life insurance will pay out a lump sum to your loved ones.??

They may use this amount for the expenses of your funeral and cremation, or even their daily life expenses for a certain period of time. Always remember that your estate planning is incomplete without life insurance!??

(3) What are the asset classes for estate planning??

There are 5 main asset classes for estate planning; they are real estate, commodities, equities, fixed income, and liquid cash.??

Having diversified assets in estate planning has various benefits, such as:?

(a) Risk Diversification:??

You can hedge against the market volatility with different asset classes, as each asset reacts differently to the market situations.??

For example, equities can provide high returns, but they can be highly volatile; while fixed income bonds usually offer a lower, stable return but less volatile than equities. Both of these assets complement each other and can help minimize the risks in different market situations.?

(b) Tax Efficiency:?

With a diversified assets portfolio, you can take advantage of tax-efficient strategies during estate planning. Individuals can avoid risks, increase returns, and achieve a long-term financial goal by properly balancing their assets and investments to reduce tax impact.??

This is in line with the objectives of estate planning, where it is to maximize their wealth while ensuring a secure financial future for both the individual and their future generation.??

(c) Capital Preservation:?

HNWI usually plan their asset allocation not only for their next of kin, but also for their retirement. Their goals are not only to generate wealth but also preserve their capital for their retirement life.??

Consequently, by lowering the overall risk in their portfolio, asset diversification can help in safeguarding their funds, providing them with a financially secure retirement life.?

(4) How does Life Insurance fill the void of the 5 main asset classes?

The main purpose of Gap Life Insurance is to help balance your portfolio – It provides a guaranteed payout, mitigating the volatility risk of the other asset classes.?

Let’s imagine that our client, who is an HNWI, has a USD 50 million worth of portfolio across all the 5 main asset classes. There’s no promise that the assets’ values will remain consistent throughout the lifetime; they may increase or decrease.?

That means that there is a possibility that the wealth that is passed on will be significantly less than was intended. So, here’s where life insurance bridges the gap by providing a guaranteed amount that is consistent to your next-of-kin.?

As for businesses, there’s also life insurance coverage to protect them, i.e., Key Man Protection, a.k.a, Keyman Insurance. It is usually taken on by businesses on a key employee, i.e., an associate or director, to allow the business to continue operating, cover financial losses, and stay stable throughout the transition when the key person dies. ?

Generate a Personalized Estate Plan with Doo Wealth UAE?

As we conclude our article, Doo Wealth UAE would like to remind you to “Plan for the Inevitable”. Stay ahead of time and avoid the chaos after your lifetime!?

For more information on estate planning, kindly contact our friendly advisors at [email protected] or fill in the form on our official website: https://www.doowealth.com/en?

Let us help you create a personalized estate plan tailored to your specific needs!?