Putting the pieces together: wealth planning for international families
Families with complex cross-border financial and non-financial affairs will benefit from a joined-up plan that supports their long-term needs and ambitions.
There are many reasons why family members might live or work in different countries. They may relocate for education or professional development, to expand a business or pursue investment goals, or to experience a new culture or different lifestyle.
Balancing the needs to protect family assets, ensure tax efficiency and transfer wealth to future generations can be challenging for international families, and since every family has unique circumstances, they will require individually tailored solutions.
However, there is one piece of advice that is crucial for every family in this situation, says Ann Ling, Managing Director, Wealth Planning and Advisory, Asia at HSBC Global Private Banking: “Plan ahead and talk to your advisers or wealth planners as early as possible. Sometimes clients approach us for pre-immigration solutions only a few months before they move abroad, which is leaving it very late.”
“Once you land in your destination, your choices become very limited,” agrees Giev Askari, Senior Wealth Planner, Americas at HSBC Global Private Banking. “If you talk to us before you leave, it’s like magic. We have a full palette of options.”
Prepare well in advance
Even relatively straightforward goals, such as arranging for children to study abroad, benefit from as much preparation as possible. If a Hong Kong-based family wants to send a child to school or university in London, for example, they will need to obtain the correct UK visa, set up a UK bank account for money transfer, and arrange a suitable place to live. If the child is likely to remain in the UK long enough to buy a property, the family might also want to explore the most effective way to finance the purchase and the optimal structure to hold the property.
Wealth planning plays a very strong role in fitting it all together,
says Nadine Vandenberghe, Senior Wealth Planner, UK at HSBC Global Private Banking. Advisers in the client’s home country and destination country will coordinate to set up suitable accounts and services, and to connect clients with any other external expertise that is needed.
“With any potential relocation, it is vital to consider all the implications, even if these might only be relevant well into the future,” adds Ling. An individual who moves to a different country to work or expand the family business could acquire a different tax residency or end up on a path to another citizenship. This will affect financial planning, since earnings in a different currency in a different tax environment will alter the choice of products available for personal investments. A new residency or citizenship also often means that the individual will be subject to complex rules on inheritance or matrimonial assets in a divorce.
“That’s why comprehensive pre-immigration planning is really important,” says Ling. “It’s also why clients need to address succession issues with the next generation early, because their personal choice of where to live may have an impact on the family wealth and potentially the younger generation’s role and responsibilities as successor of this wealth.”
An international bank that provides both personal and commercial banking relationships for a family is uniquely positioned to help them identify areas where they need in-depth cross-border expertise. “We had a client whose son was moving from the Middle East to the US for business,” says Vandenberghe. “We brought in Giev, and he took it forward to make sure both the client and the business had the right advice and were well prepared.”
Estate planning must go beyond tax
Estate and succession planning is a major consideration for families that have assets and beneficiaries in different countries, because inheritance laws and estate taxes vary greatly around the world.
Under English law, for example, an individual can leave their assets to any beneficiary they choose. However, in several European countries, such as Italy, France and Spain, and some Middle Eastern and South American countries, forced heirship rules apply, and they are not allowed to exclude certain family members. A will that is valid in England could therefore contravene the succession law of another country, so specialist advice is needed to identify any complications in advance.
In addition to establishing what is possible legally, it is also vital to consider how to best secure the family’s long-term legacy. Some families do so by focusing exclusively on tax issues around succession planning, says Askari, and while this is certainly an important consideration, tax efficiency should not be viewed in isolation. “It’s even more important to engage in holistic family governance planning, incorporating tax-efficiency considerations.”
Failure to do this could lead to very costly disputes that put money in the hands of lawyers rather than heirs. “I’ve seen a very large international estate that was disputed among the family. In the end, the attorneys got twice what the beneficiaries received,” Askari cautions.
Setting up structures such as trusts and foundations can play a key role in providing continuity and preserving wealth.
Some US states such as Delaware have very flexible trust structures that are well suited to multi-generational transfers, says Askari. However, some European countries do not recognise trusts at all, while others, such as the UK, impose entry and exit taxes on trust assets.
Consequently, expert advice is needed to make sure a trust complies fully with all legal and regulatory requirements and serves the purpose for which it was intended. “You need to make sure that what you are doing in one country won’t prejudice you in another,” Askari notes.
Begin estate planning as early as you can, adds Vandenberghe, and review your plan every few years. “A family might establish a trust when all the beneficiaries are resident in the same jurisdiction, only for some to move to other countries with different tax rules. Or talented children and grandchildren will come along and wish to enter the family business.”
Regular reviews will also keep you aware of new complications created by the changing world in which we live.
Consider digital assets, says Ling – those with financial value such as cryptocurrencies, and those with sentimental value such as email, social media accounts and photographs. “This is often neglected in estate planning, but online service providers have different terms and conditions governing what happens when you pass away – for example, how much access is granted to your designated persons.”
Individuals should keep a comprehensive list of their digital assets, as well as instructions for accessing them, just as they would for financial assets and other property. “Senior generations tend not to be aware of they need to make plans for their digital assets, but younger generations are asking questions such as ‘Can bitcoin be held in a trust?’,” says Ling. “These are the type of emerging issues we are paying close attention to.”
There is no cookie-cutter solution when it comes to wealth planning; every family will have its own goals, requirements and unique circumstances. Planning well in advance will ensure that your financial affairs are structured to support your long-term financial goals.
For more than 75 years, HSBC Global Private Banking has served generations of international families: advising, designing and implementing solutions for the organisation and effective transfer of their wealth. Our global footprint means we have access to expertise across different jurisdictions and are able to draw on our network to provide tailored solutions for individuals and families with the most complex wealth requirements. For more information, contact us or your Relationship Manager.