Simplicity in a complex environment

In today’s world, family situations are becoming increasingly complex, especially when it comes to where its members are located across the globe. This factor alone creates a huge challenge for HNWI and their families as they seek solutions and strategies to help preserve family wealth throughout the generations. The need for qualified advice has increased significantly due to the growing complexity and disparity between different jurisdictions in terms of tax and legal rules applicable to each one, their wealth planning and investment and operational structures.

Change is the new normal

It is clear that the Covid-19 pandemic has added even more complexity and uncertainty to the mix as HNWI can no longer anticipate with confidence what the economic, financial, tax and legal landscape will look like in a few years’ time. In fact, we are already noticing how almost all OECD countries are accelerating legal and tax changes at national level aimed at ensuring more revenues in the future in order to reduce or mitigate the increase of public debt levels. This trend will no doubt affect those HNWI who have not ensured that their family wealth is well structured in line with the most recent planning standards in the different jurisdictions in which they are resident. Here, we could be talking about Trusts, Foundations, Offshore Companies or even unit-linked life assurance policies but in these matters, we should always bear in mind that “one size does not fit all” and that proper local advice should be sought in the jurisdiction of residence in order to avoid pitfalls and undesired consequences.

Relocation is a key driver

In the current context, HNWI and their families are considering different solutions and one of the easiest ones might seem to be to relocate to a more favourable tax jurisdiction in Europe or overseas. Besides, retirement is often a trigger to seek a slower lifestyle in sunnier climates. Relocation however is not always an easy matter. It requires specialist legal, tax and estate advice to fully understand the consequences of a change in residency.

Where does life assurance come in?

Life assurance is an excellent wealth and tax planning instrument which is widely recognised in Europe and beyond as a tool to hold and transfer family wealth. This is, if compared to other structures like Trusts, Foundations or Investment Companies, a significant advantage as HNWIs who opt for these solutions can easily obtain proper advice about the treatment of such investment vehicles in the jurisdiction where they are currently resident or, even better, the one in which they intend to reside after relocation. At OneLife, our team of international experts regularly receives questions when it comes to client mobility such as, is a “death cover” required? How will the assets be managed? What will taxation be upon surrender of the policy? These questions can be quickly and easily clarified with the answers clearly answered in domestic legislation.

Unfortunately, certain holding or investment structures imported from other jurisdictions need to be analysed in depth by local advisers in the new country of residence which undeniably generates stress and frustration for clients.

Therefore, the pre-planning is key when relocating to a new country, especially because many clients tend to forget that some countries have implemented “exit taxes” on unrealised gains which apply whenever taxpayers with significant wealth transfer their tax residence to another jurisdiction. Despite the current downturn of financial markets, many private investors have benefitted from the overall positive performance of the financial markets since the last financial crisis and this is why many of them could be significantly impacted by the previously mentioned “exit tax” national schemes. Fortunately and for these type of investors, life assurance represents a suitable solution as financial assets held under life assurance are commonly and usually deemed out-of-the-scope of domestically implemented “exit tax” measures.

In a nutshell

Whether in the position of Financial Advisor, trusted Lawyer, or Family officer, it comes as no surprise that the current environment for HNWI and their families is becoming increasingly complex and the outlook in the short- to medium- term looks rather negative.

Many of them will be seriously looking into relocation plans. In this case, it is a professional duty of the trusted advisors of these families to provide them with the most appropriate guidance and advice whether financial, fiscal or legal. At OneLife, we therefore regularly accompany advisors and their clients in realising their relocation projects in the best way possible. Life assurance is after all an ideal, fully portable solution which can be tailor-made to individual situations.

Gonzalo Garcia Perez
Wealth Planning Manager

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