Many think wealth management is simply a question of saving as much as you can, managing those assets to provide a comfortable retirement and being heavily insured to protect the family, think again. With the introduction of the Common Reporting Standards slowly being accepted and adopted by more countries, Estate Planning is becoming much more crucial to Families financial planning in all jurisdictions.
Producing a long-term financial plan to meet your future costs of both the expected and the unexpected is a core part of financial planning. There are also just as equally more important considerations in planning for the long-term financial security of a client, more so clients with families.
Estate planning is essential to ensure that death taxes are minimized and also that the estate is smoothly passed to intended heirs. As a wealth manager, I meet and work with people whose circumstances are hugely different. Many clients have multiple bank accounts and investments, which can be spread across different countries and continents for many different reasons. It is often necessary to restructure and simplify these arrangements to ensure a smooth transition to intended beneficiaries.
Investment vehicles offered by Financial Institutions can be very flexible and will sometimes incorporate all of a client’s financial planning needs, including long-term tax planning, but with CRS this now makes some of these vehicles less estate friendly. However the personal circumstances and long term plans of individuals can use additional financial planning tools to ensure maximum asset protection.
With the start of Common Reporting Standards (CRS) coming in to effect this year long term tax planning should be a core consideration in any form of financial restructuring. CRS allows Governments to collect information on Tax residents who hold financial accounts in other jurisdictions who have signed the agreement. The reporting covers individuals, companies, including those utilizing trust or company structures. A person living outside of their home country may be currently free of the burdens of taxation & to some extent reporting, but future changes in personal circumstances may mean that tax could once again become an larger issue. This applies not just to those who are planning to return home but also, in some cases, to those who do not plan to return to their home countries.
A very dividing subject, of all the forms of taxation Inheritance Tax is probably the most uniformly despised. It is a tax on the assets of a deceased person, assets accumulated from income and gains that have usually already been taxed and so in a very real sense this represents double taxation. For those countries that continue to levy this form of tax, it is politically challenging, to say the least, to abolish a tax that many perceive as a tax on the ‘rich’ and so it is probably here to stay. Unfortunately the rules regarding Inheritance Tax are not uniform amongst those countries that still collect it.
The main goal of Inheritance Tax planning is to legitimately reduce the value of the residual estate of the client. As taxable thresholds, tax rates and gift tax provisions vary considerably between countries, the planning strategies will be highly personalized.
The legal procedure for obtaining the release of an estate and distributing it to the beneficiaries, this can be a time consuming and frustrating process at a distressing time. It is important to understand that for some countries, until Inheritance Tax is paid and in full, the estate cannot pass to the rightful heirs. The use of insurance as a tool can help bridge the gap, while assets are tied up through probate. Probate to some extent can be avoided by using an appropriately structured trust or foundation as part of your estate planning.
Some countries, especially in Europe, have laws that prevent disinheritance of children and spouses. The effect of this is that a will can be challenged and overturned if it does not meet the minimum statutory legacy requirements. Such laws can only be applied to the legal assets of the deceased. Assets that have been legitimately transferred to a legal trust or foundation are no longer the property of the deceased and so can be placed beyond the reach of such laws. The assets placed into a trust or foundation can then be applied in accordance with the wishes of the Settlor, for the benefit of those selected by the deceased and not those nominated by the Government in their country of origin or death.
Recording Your Wishes:
There are no excuses not to have a will. It eliminates misunderstandings, ensures that your wishes are carried out but more importantly it avoids family strife. In many countries, Western or otherwise, if you have made a will and subsequently get married, that existing will becomes legally invalid and so you need to draft a new one. Any major change in your personal circumstances should bring about a major review of your existing will.
Governments will continually look to increase tax revenues from residents and also non resident citizens, planning within these rules is crucial to make sure your not paying more than your share, but also to make sure you can protect your assets for the coming generations.