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Millennials vs. Gen Xers: Fiduciary Asset Management a Mutually Fruitful Solution to Family Wealth Planning

Nowadays, one of the hottest topics of the international financial world is the succession of the private companies funded and managed by Generation Xers. According to professionals, in the United States alone, approximately USD 50,000 billion in wealth will be inherited by Millennials and Post-millennials from Baby Boomers and Generation Xers in the next 5-20 years.

Tamás Danku, Trust & Estate Practitioner, AIRON TRUST Fiduciary Asset Management LLC. Photo by Photon.hu

Unlike many regions of the world, Hungary has a very high proportion of family-owned businesses, with only a few dozen companies listed on the stock exchange. Many successful businesses are still run by first-generation founders and their wealth is often managed by family executives. As these businesses are mature and already have economies of scale, there is an increasing need to organize and protect basic business assets and the personal wealth of families.

Ownership of family-owned businesses will be an important part of inheritance, transfer of wealth between generations, and wealth diversification. In the years following the last crisis, family businesses have also achieved significant growth in Hungary through two cycles of EU funding. The global economic downturn forecast over the next few years and the outflow of EU funding will affect the investments and income-generating capacity of local family businesses.

While the overall trend continues to be extremely positive, family firms are also increasingly focusing on protecting their assets and modernizing their asset management strategies.

Long-term family wealth planning has not generally been on the agenda of Hungarian family businesses, as they primarily focus on continuous development. However, due to future political and economic challenges, successful founders and owners need to consider inheritance planning, meaning protecting financial and other assets is becoming an increasingly important issue.

The growing interest in fiduciary asset management (trusts) and the concept of the “family office” are proof of the changing thinking process.

The introduction in 2014 and the recent tax changes of fiduciary asset management in Hungary and the concept of multi-family offices and private trust companies are excellent tools for preserving the wealth and assets created by successful Hungarian families and their businesses.

Family office solutions are usually created by wealthy families with many members to manage their wealth. They are different from traditional wealth management solutions in that they offer a complete, generally outsourced solution to the financial, investment and other family affairs of a wealthy individual or family.

Family office activities may include cost planning and management, insurance management, charitable management, family business management, divorce planning, inheritance planning and management, and tax services.

One of the 2019 mid-year corporate tax changes exempted assets under management that were created by individuals, have only physical person beneficiaries and have only a financial type income. In practice, this means that, unless there is any other kind of return on assets under management, no corporation tax is payable on the proceeds from the disposal of dividends, exchange rate gains, interest received or receivables.

A trust fund or trustee may enter into a long-term investment contract (so called TBSZ) only if both the settlor/founder individual and the beneficiaries are private individuals. If the terms and conditions of TBSZ are met, the yield from this contract is exempt. The payment of a yield from a fiduciary asset management or private wealth management foundation is, as a general rule, taxed at the same rate as dividends.

Due to the new regulations, the role of fiduciary asset management in preserving, increasing and transferring the value of assets may be emphasized.

AIRON TRUST, as a licensed trust company, provides full fiduciary asset management services. Our colleagues have decades of experience in international tax planning, where international trust agreements have great importance. The introduction of the Hungarian “trust” has opened a new dimension in the field of wealth management and estate planning, for which our company provides professional services to its clients.