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At Banque de Luxembourg, our aim is to provide the best possible support for passing on your estate, by involving your heirs in preparing for it and respecting everyone's expectations.

How does a bank like Banque de Luxembourg address the challenges of inter-generational inheritance? 

Luc Rodesch: When we talk about the transfer of the wealth held today by the baby boomers, which you describe as the biggest transfer ever, I think we need to make certain distinctions. First of all, this transfer will be spread out over a long period of time. The oldest baby boomer is now 75 years old. The youngest is only 55. Given current life expectancy, the wealth these individuals have accumulated will take at least 30 years to change hands. Despite the often-quoted figure that some 30 billion dollars are expected to be passed on in the US market alone, it is difficult to assess the scope of the issue. It will be a very gradual process so it won’t have a sudden dramatic impact. 

 

Claude Medernach: Also, rather than going directly to the younger generations, this wealth is likely to go first to the deceased's spouse if he or she is still alive, before being passed on to their children – who are not themselves part of Generation Y, the Millennials, but are members of Generation X, born between 1966 and the late 1970s. They are in their fifties and no longer dependent on their parents. They already have established wealth and an advanced financial culture in their own right. So while it should be considered in perspective, estate planning is important and must be properly understood at a banking level. Our aim, as financial adviser, is to ensure that the next generation remain with the bank and that our support for families is long-lasting. Managing multi-jurisdictional and trans-generational situations is central to our expertise.

 

What are the risks and opportunities in estate planning?

Luc Rodesch: The dilution of assets as a result of dividing the estate is an important consideration as each heir will be free to dispose of the assets they inherit. Some of the heirs may have built up their own banking relationship elsewhere. The challenge for us is to extend the relationship of trust that exists between the bank and each of our clients with members of the next generation. One of the ways we can do this is to engage in discussions with the future heirs and ensure we have a comprehensive understanding of the assets and the future beneficiaries so we can manage everything better. 

Claude Medernach: When we talk about inheritance, questions of preserving the heritage arise. As far as the financial assets are concerned, dividing or diluting the assets is not a major problem in itself. The situation is much more complex when other, non-financial assets come into play, such as a family business, for example. In this case, our client's concern will primarily be to guarantee the continuity of the business and, for example, avoid a situation where the business is sold due to a dispute between the heirs. These are not trivial matters and it’s important to raise them sufficiently early on. Considerable preparation may be required, involving the generations who will be called on to take an active part in the management of the assets during the lifetime of the founder or entrepreneur. 

How can a private bank help in the estate planning process? 

Luc Rodesch: It's never too early to start planning your estate. When we talk about inheritance, the French expression ‘le mort saisit le vif’ (literally ‘the dead seizes the living’) means that the legal title vests immediately with the surviving heirs at the moment of death and the estate passes to them immediately. Unless thorough preparations have been made, there may be significant losses or a regrettable dilution of the estate that has been built up over the years. With this in mind, in order to avoid the heirs having to deal with an estate that they may not necessarily be familiar with in terms of scope and detail, the transfer can be organised during the lifetime of the legator or, at least, prepared as well as possible. Private bankers who have a relationship of trust with their client have an important role to play in this context. They are well placed to help legators organise their estate and can take advantage of this preparation to forge a relationship with the next generation.

Claude Medernach: Starting early enough puts everyone in a better position to address all the essential questions and provide answers. It allows time to analyse the situation concerning the family, the assets, the legal and tax position, and consider the best solutions, taking into account the legator's objectives in passing on their wealth. This will allow for better estate planning and perhaps the implementation of a philanthropic project.

What practical steps can be taken when preparing to pass on an estate? 

Claude Medernach: First of all, establishing an open dialogue with the client on these issues. Easier said than done. The end of life is the ultimate in sensitive subjects. Most of our clients wait too long to address the subject. Being able to talk about it as early as possible and addressing it in a factual way – starting from the needs and expectations of the families – helps get away from the emotional side and make better preparations for the future.  

Luc Rodesch: We consider the solutions to be put in place, according to the issues and expectations communicated by our clients.  There are many tools available to help with sound estate planning. During the client's lifetime, we can bring family members together and unite the parties around a shared project that chimes with our client's values. For example, a family charter or governance process can be set up. The estate can also be placed in a limited partnership company which the future generations can have shares in and this will allow the various asset classes to be managed appropriately. Such solutions will help ensure that the family wealth can be preserved or used for a project that brings family members together and transcends the generations.  

Are some clients more alert to these issues than others? 

Claude Medernach: Some clients cling to the idea that they still have time to think about these issues. I have an 80-year-old client who keeps telling me, when I raise this issue, that he will look at it when he’s old. We find that some of our biggest family clients are more naturally inclined to take the issue seriously and make plans involving their heirs. Those who have already inherited from their parents and had to deal with tensions over that transfer often think about preparing their estate better.

Luc Rodesch: Preparing to pass on your wealth is a valuable opportunity to build a family project and to ensure that, over and above the assets, you transmit the values you hold dear to ensure they survive you. Rallying the heirs around shared convictions is an important role that we, as private bankers, can play. It requires us to demonstrate a great ability to listen and have real empathy – this is essential to align the expectations of each party involved in the inheritance process. 

What are your clients’ particular concerns in estate planning? 

Luc Rodesch: Our clients are primarily concerned with fairness when it comes to inheritance. But many also want to ensure that the next generation is sufficiently prepared to properly manage the inheritance. The fear is that some of the heirs may squander such wealth. Other clients are concerned about their child's ability to take over the family business and how to arrange the division if one child is in charge and not the others. In cases where there is a vulnerable member of the family, it may be necessary to make specific provisions to ensure that some of the assets are set aside to look after them, to ensure that they will not lack anything after the demise of the parents who have hitherto looked after the vulnerable person's interests. 

Claude Medernach: Faced with such diverse and valid concerns, we offer a variety of initiatives. For example, our Summer Academy is for the sons and daughters of Luxembourg, Belgian and French family business owners, aged 18 to 30, who, as they leave school or higher education, are considering whether or not they want to join the family business one day and what role they could play in it. The idea is to help them look ahead and to initiate a constructive discussion around the transition. We can also set up financial education programmes with coaches and even psychologists to prepare the next generation. These approaches are often reassuring for both parents and children.  

From one generation to the next, are there differences in the relationship we have with money?

Luc Rodesch: There is a significant difference between the generation who lived through the war and the baby boomers. The former tended to focus on building up wealth. Their main concern was to safeguard it, more than to make it grow. Their children, who grew up in a more peaceful world, were more interested in enjoying life and they consumed much more. Part of this wealthy population is also seeking, through philanthropy, to give back to the community some of the wealth they have accumulated, by supporting causes and setting up foundations.  

What relationship do members of the younger generation have with wealth?

Claude Medernach: While we tend to think that a person who inherits might take greater risks in the way they manage their assets in order to get a bigger return, we have found that this isn’t always the case. Everyone has their own approach, depending on their personality and temperament. The current context is very different from the one their parents experienced. It is much more complex and there are many more investment opportunities. Here too, the role of private banking is to support them and help them make the right choices in light of their aspirations.

Luc Rodesch: I notice that in this more uncertain world, Generation Y is less questioning about the distant future. They are less concerned about the need to plan ahead and are much more preoccupied by the need to act now. They don't make 30-year plans and they are much quicker to adapt in a world that is changing ever faster. As advisers, it is a challenge for us to keep pace with them and meet their expectations. In addition, this generation is keener to compare and more willing to challenge its partners on the services they offer and the prices they charge. They are not necessarily less loyal but certainly more demanding. 

Can any major trends be identified in the way the younger generation's expectations of their financial adviser are changing? 

Luc Rodesch: The relationship is evolving. One thing is certain, clients are less and less willing to travel to meet their banker. However, they do want to interact better with their adviser. We are therefore trying to apply the digital tools available today to serve the relationship, so that clients can easily interact with their bank, completely securely, wherever and whenever. But looking at the usage statistics of our mobile solutions, the use of digital tools is not only the prerogative of young people. All our clients use them. The other major trend is the younger generation's ambition to invest responsibly. Their choice no longer depends solely on expected returns. They are increasingly considering the purpose of the projects in which they invest, with the aim of generating a positive social and environmental impact. 

Claude Medernach: Another development, which is a corollary of the two trends mentioned, is the demand for greater transparency with regard to the financial adviser. Although this is imposed by the regulator, it also responds to a strong demand from clients: increasingly, they want to understand what they are paying for and they want to be able to access clear and detailed reports, know how the assets are invested, and see a breakdown of the fees. In the future, private bankers will need to be more accountable and demonstrate the value of their expertise in best serving the client.  

Given the challenges in passing on an estate and the risk of diluting the assets, what specific advantages does Luxembourg private banking offer?

Luc Rodesch: We have substantial expertise in wealth management, drawing on our considerable experience and numerous tools that enable us to support our clients over the long term. The fact that families tend to be spread across several jurisdictions also plays into our hands. We have learned to manage this complexity from our base in Luxembourg so that we can offer better individual service for each client. We can address each client's specific tax situation and help them structure their wealth most effectively. Family configurations have also changed significantly, with divorces, remarriages, children from a first union, others from a second, sometimes a third, many of them living in different countries. Estate planning can sometimes feel a bit like solving a Rubik's Cube. 

Claude Medernach: However, this is what makes our profession so rewarding and fulfilling for a wealth management consultant. We have a real opportunity to support wealthy families, using our in-house expertise and calling on external resources where necessary. Luxembourg has a powerful ecosystem and is well equipped to meet such challenges. The key is to encourage clients to address the issues relating to their inheritance at a very early stage, in order to better advise them and plan how to pass on their estate.  

Meet our experts to take stock of your assets.

Angela Murrell
Private Banking Adviser
Sandra Giunta
Senior Private Banker
Gabriel Buda
Senior Private Banker

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