There’s more to wealth management than bankable assets… Global families have worldwide assets and family members across multiple countries. These families need support to identify and plan for the events in life that will impact their wealth. We describe this as ‘Wealth Planning’.
Despite great diversity in how wealth is acquired and preserved, many global families encounter similar life events which present critical opportunities (and sometimes threats) to their wealth. Wealth Planning is essential to identify these pivotal moments and consider the cross-border implications, in order to tailor solutions for personal circumstances.
GLOBAL WEALTH - GLOBAL FAMILIES - GLOBAL ISSUES
The international dimension to a family’s wealth might include real estate in more than one county, family members who work, study or marry abroad, and businesses operating across multiple national boundaries.
Assets classes that require special thought include:
- Real estate
- Valuable chattels, such as Art, jewellery, historically significant items, yachts and jets
- Business interests, especially family businesses
- Pensions and retirement funds
- Insurance and life policies
- Creditor rights (where loans have been made, perhaps to help the next generation)
Notably, real estate is often taxed according to its location (or ‘situs’). This can be true of other types of assets too, such as trading businesses. Complexities may arise if the owner is resident in a different jurisdiction to where the asset is located.
For example, if there is a holiday home abroad, the fiscal implications should be considered where the holiday home is located. These might include taxes connected with: property ownership; sale or transfers; rental income; or the value of the property on the owner’s death. Any double tax treaties in place between the two countries should also be checked, to see if tax paid in one county can be claimed as a credit against taxes due in the other, to reduce the risk of double taxation.
Individuals and families with global assets should put in place a bespoke ‘Wealth Overview’, which takes stock of the overall financial position. This should pin-point events that may impact on the family’s wealth and highlight solutions to secure the right long-term outcomes.
It is better to be pro-active and plan for circumstances that can steer the course of the family’s wealth, rather taking a reactive approach. This is particularly true for global clients, who should take into account the additional complexity inherent in having assets and family members across multiple jurisdictions.
IDENTIFY CRUCIAL EVENTS
Life can be unpredictable, but we know from experience that certain events will require a review of the family’s Wealth Planning. Such events include:
- Family members moving between countries, especially when the move is between common law and civil law jurisdictions
- Marriages (and, sadly, divorces) that introduce new jurisdictions and questions regarding wealth preservation (division of assets on separation / prenuptial agreements / maintenance orders / matrimonial property regimes)
- Liquidity events, such as the sale of a business or other assets, inheritance, and windfalls
- Gifts to the next generation or investment in their homes or start-ups
REVIEW EXISTING STRUCTURES
Wealth advisors should seek to understand any existing structures in place, which might range from a simple personal estate plan to a complex holding structure. Existing structures should be reviewed periodically with fresh eyes, to consider if these are still ‘fit for purpose’ and meet the current and expected future needs of the family. It is important to ask if the structures in place now will work for the next generation?
WHEN TO SEEK WEALTH PLANNING ADVICE - THREE EXAMPLES
Every family is unique, and below are a few examples of the cross-border issues faced by global families today.
Entrepreneur: the cycle from ‘start-up to sale’
Mr A has accepted an offer to sell his successful business (B1) and is contemplating gifts to his children and charities. He is excited about starting his next project (B2) and wants to transfer some shares in B2 to the next generation now (before external investment increases the value), but retain control of the new venture.
Mr A needs to consider:
- The sale of B1 (including tax planning to take into account where B1 operates and where he is tax resident) - Managing the sale proceeds from B1, including investments for his children who are based abroad and/or philanthropic gifts, (gifts to charities outside Mr A’s own country may not be tax deductible).
- How to structure ownership of B2 to gift some of the economic value whilst retaining control. This might be achieved through creating two classes of ownership, which separates the future growth in value from decision making.
Using existing structures to help the next generation
Mrs B settled a family trust/foundation which holds investments and residential properties in multiple jurisdictions. Her daughter has finished studying abroad and wants to settle into one of the properties full time. Meanwhile, her son’s fiancée is from abroad and they do not know where they will settle long-term.
Mrs B and the trustees should consider:
- The tax and immigration issues of her daughter remaining abroad and living rent free in a property owned by the family trust.
- If Mrs B’s son and fiancée should have a ‘pre-nuptial agreement’ and if the fiancée will be a beneficiary of the structure. If they move jurisdictions once married, this could affect how Mrs B’s son will be taxed on distributions from the structure.
Preparing the next generation to manage the family wealth
If the head of the family has always held the reins of the family investments and the family owned business, consideration should be given to involving the next generation in the business and the investments. What happens if the matriarch/patriarch were suddenly incapacitated or to die untimely?
HAND IN HAND
Preserving wealth for global families begins with a holistic Wealth Planning overview, but it does not stop there. Once the family has identified what is most important to them, they should engage wealth advisors and local expertise to put plans in place and follow up with a systematic and integrated coordination, to secure their long-term goals for the future.
> If you’re interested in finding out more, please contact us.
What matters to you?
Life, business, investments, aspirations - what matters to you matters to us. This article is part of our ’What matters to you?’ series, in which we have a close look at what lies close to your heart and how wealth planning may help you to achieve your objectives.