Why some family wealth lasts three generations: principles, Hong Kong tools and failure modes

Definition: rules, not assets

Old-money thinking is the set of behavioural rules shared by families that have already passed wealth through at least one generation. It is not an asset class or an investment style. The difference from new money is not the amount or origin of the wealth but its use: new money treats wealth as a personal achievement to be spent, displayed and liquidated at will; old money treats it as family capital held in stewardship by the current generation, whose job is to hand it on intact. This site reduces those rules to five principles and then examines which of Hong Kong's legal and financial tools, whole life insurance and large policies, trusts, family offices, holding companies and share structures, and philanthropy, implements each one. A common error is to mistake the tool for the principle: buying a large policy, settling a trust or registering a family office does not give a family old-money thinking. Without the principles, the tools are expensive containers, and the containers themselves become the object of disputes.

The five principles

The five principles are a structure, not a list. Education and values are the foundation; without them the other four fail by the second generation. Governance is the frame that turns the two economic principles and the behavioural principle into enforceable rules.

Why Hong Kong: rules and data

Four verifiable facts make the principles easier to implement in Hong Kong than in many jurisdictions. First, estate duty is gone: the Revenue (Abolition of Estate Duty) Ordinance 2005 took effect on 11 February 2006, so no estate duty is charged on the estates of persons dying on or after that date, and transitional estates (deaths from 15 July 2005 to 10 February 2006) pay a nominal HK$100 (IRD). Second, Hong Kong charges no capital gains tax, dividend tax or gift tax; profits tax applies only to Hong Kong-sourced business profits, although the foreign-sourced income exemption regime in force since 1 January 2023 changes the treatment of some offshore dividends and disposal gains. Third, the Trust Law (Amendment) Ordinance 2013, in force from 1 December 2013, abolished the rule against perpetuities for new instruments, introduced a statutory duty of care for trustees (section 3A of Cap. 29), confirmed that a settlor's reservation of investment powers does not invalidate a trust (section 41X) and protected lifetime transfers of movables into Hong Kong-law trusts from foreign forced heirship rules (section 41Y). Fourth, the Policy Statement on Developing Family Office Businesses of 24 March 2023 set out eight measures, including a 0% profits tax concession for family-owned investment holding vehicles managed by an eligible single family office with at least HK$240 million of Schedule 16C assets, in force from 19 May 2023 and applying from the year of assessment beginning 1 April 2022 (IRD).

On data, the Census and Statistics Department's 2026 edition of Women and Men in Hong Kong gives expectation of life at birth in 2025 of 88.7 years for women and 83.3 for men (provisional). A person starting legacy planning at 60 has, on average, more than twenty years ahead; the third generation will very probably reach adulthood during that time. Legacy is therefore not a post-death event but a twenty-year project with three generations in the room.

What each tool does

Whole life insurance does two things: it produces cash at death that bypasses probate and is paid according to the beneficiary designation, and its guaranteed cash value provides a floor that does not move with markets. Under section 13 of the Married Persons Status Ordinance (Cap. 182), a policy expressed to be for the benefit of the insured's spouse or children creates a statutory trust in their favour, so the proceeds do not form part of the insured's estate. Its limits are that bonuses are non-guaranteed, early liquidity is low, and premium financing turns it into a leveraged instrument. Trusts transfer legal ownership to a trustee and allocate benefit by deed, which is the only way to make "principal belongs to the family" legally true. Holding companies concentrate shares in one entity whose articles and shareholders' agreement govern voting, dividends and transfers. A family office is not a legal structure but the body that executes the rules. Charitable structures (section 88 tax-exempt charities and charitable trusts) carry values and train the next generation in governance.

Five ways families fail

Division: the second generation splits the assets by branch and each share loses scale. Spending: without the discipline of spending only income, principal is consumed within a generation or two. Disputes: the will, beneficiary designations, trust deed and shareholders' agreement contradict one another, or there is no will and the Intestates' Estates Ordinance (Cap. 73) applies a statutory order that rarely matches the family's intention. Tax and cross-border: members in different tax residences and assets in different jurisdictions with nobody coordinating, leading to double taxation, reporting failures or frozen assets. No successor: the business depends on the founder and is sold at a bad time. Four of the five can be reduced by documents and education; the fifth requires accepting that legacy is not the same as succession.

How hard is the three-generations evidence

The figure that 70% of families lose their wealth by the second generation and 90% by the third is usually attributed to a Williams Group study of about 3,200 families, but the methodology has never been published, retellings disagree on sample size and definitions, and the adviser Jim Grubman has argued in "There is no 70% rule" that the statistic is a self-fulfilling prophecy (reported by InvestmentNews, 24 February 2025). Academic evidence points both ways: NBER working paper w33355 (Kalsi and Ward, 2025) finds that 93% of grandchildren of wealthiest-1% households in 1850 to 1940 census records did not reach the wealthiest 1%, while Korom, Lutter and Beckert (2017) find that heirs on the Forbes 400 from 1982 to 2013 were more likely than self-made entrepreneurs to remain listed. Wealth dilutes in most families and persists in the few with institutions. This site treats the saying as a phenomenon to be explained, not a law.

Scope and position of this site

oldmoney.hk is an independent Hong Kong information site. It is not an insurer, licensed insurance intermediary, trust company, law firm or bank; it sells nothing, accepts no applications, makes no referrals and carries on no sales activity in Mainland China. Mainland residents buying Hong Kong policies must sign in person in Hong Kong and complete the Important Facts Statement for Mainland Policyholders; cross-border fund, foreign-exchange, Common Reporting Standard and tax obligations depend on personal circumstances and require advice in the reader's own jurisdiction. The Chinese pages cover each tool, the failure modes, a seven-step process, hypothetical scenarios and a checklist in detail; the English summaries here cover the overview, a tool comparison and the most common questions.