Wealth Advisory & Planning
May 02, 2019
The Complex World of Families of Wealth
The world is changing, and the nature of family life is evolving. An increasingly global economy, ease of international travel and widespread access to mobile and digital communication are extending the geographic reach of families.
These opportunities come with unique challenges. Income and estate tax planning; asset, real estate and investment management; family trust administration and governance; and banking, brokerage and gift-giving transactions all become exponentially more complex when undertaken in the context of multiple U.S. and foreign legal and tax jurisdictions. Importantly, maintaining healthy family dynamics and a shared sense of purpose requires special effort for multi-generational families living on different continents, especially as they seek to prepare successor generations for responsible stewardship of the family legacy.
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THE EVOLUTION OF THE CROSS-BORDER FAMILY
Today, many families have members living, working and retiring abroad. At the same time, more foreign-born individuals and families are drawn to the stability, regulatory strength and tax environment of the U.S. While strategic expatriation or retirement can be planned for, many families find they have little lead time before needing to navigate cross-border circumstances. That was the case when the London internship of one client’s grandson concluded with a permanent job offer. For another, a daughter’s short-term rotation to a Johannesburg subsidiary quickly became a permanent relocation when she married a South African co-worker. In such instances, families must quickly consider the tax regimes of varying jurisdictions, particularly as they plan for the management and distribution of wealth.
From Glenmede’s perspective, the possibility of cross-border complications may be revealed through passing conversation, or more formally during an annual Goals-based Wealth Review. Our Wealth Advisors seek to anticipate the short- and long-term implications of an overseas job or marriage and begin the process of identifying the myriad of complex issues and the solutions to best serve the family’s interests.
CREATING A MULTI-GENERATIONAL CROSS-BORDER ESTATE PLAN
For multi-generational clients of wealth, an overseas family member affects the estate and legacy plans of every generation, from the founders to grandchildren and beyond. To protect, preserve, invest and pass on family wealth, sophisticated cross-border estate planning is required. Navigating the different inheritance and transfer-tax regimes across multiple jurisdictions can be among the most complicated issues families face, especially if members immigrate to another country.
Why is this so complicated?
In most common-law regimes, including the U.S., the estate pays taxes before assets are distributed according to the wishes of the grantor, who has broad discretion in naming inheritors. However, civil-law regimes, which include most European countries, follow the Napoleonic Code. Under civil regimes, heirs are determined by strict laws of family succession, and heirs—not the estate—pay the taxes when assets are distributed. Importantly, the common-law concept of a trust has little legal standing in many civil regimes, so establishing alternative estate and gift-giving vehicles may be necessary.
International families in the U.S.
One family’s move to the U.S. required months of planning and coordination. Foreign attorneys and accountants guided decision-making about exit taxes and currency controls, and U.S. attorneys created the necessary U.S. trust and closely held corporate structures. Pre-existing trusts were moved to the U.S., where Glenmede could serve as the trustee and investment advisor, and manage the family’s assets, shepherd their trusts, and quarterback ongoing relationships with their other advisors.
When a U.S. citizen marries a foreign national or legal permanent resident of the U.S., careful tax planning is required to ensure the non-citizen spouse receives the same tax benefits that would accrue to a citizen spouse. In these cases, Glenmede frequently establishes a Qualified Domestic Trust and serves as trustee to facilitate tax-exempt distributions of income and assets to the spouse.
MANAGING FINANCIAL LIFE IN A NEW COUNTRY
When a family member moves to a different country, they face immediate financial challenges. First among them is maintaining cash flow. Establishing a banking relationship in the U.S. is relatively easy, but many other countries have stringent requirements. In addition, local and home-country taxes may affect the net amount received from gifts, trust distributions or home-country retirement schemes. Living abroad also has investment implications. Portfolio allocations must align with new short- and long-term wealth objectives, and examine potential investments in local retirement funds, securities markets and real estate. Finally, real-time access to comprehensive investment and financial information is necessary to facilitate budgeting, planning and informed decision-making.
The family’s Relationship Manager provides referrals to trusted partners, mobilizes in-house tax and investment planning resources and partners with local experts to develop tax-aware solutions. For clients making a permanent move, we also arrange introductions to qualified legal counsel. All clients have secure 24/7 access to their consolidated financial information through WealthView, including assets held at Glenmede, as well as those held externally.
PRESERVING FAMILY VALUES
One of the most important—and overlooked—subtleties for parents, siblings and children living on different continents is the change in family dynamics. Even with social media and digital technology, maintaining relationships across multiple time zones can be challenging. News may travel quickly, but opportunities for the stories and conversations that bind families require nuance and time. Shared values about the purpose of family wealth can become difficult to sustain as grandchildren come of age in different social and cultural environments.
The Glenmede Relationship Manager often serves as the family’s Chief Communications Officer. Ever mindful of our responsibility to act in clients’ best interests, we arrange annual family meetings, ensure everyone is informed of news affecting the family wealth and facilitate online and onsite tutorials to prepare younger generations for the responsibilities that come with wealth and legacy management.
A CONSTANT: GLENMEDE’S COMMITMENT
As the challenges of multi-generational cross-border families evolve, Glenmede will continue to anticipate their needs and expand our service capabilities. In a changing world, we remain steady in our commitment to provide forward-thinking advice and innovative solutions to help families manage, protect and preserve their wealth, wherever life takes them.
2018 Annual Review Disclosure:
Glenmede’s Annual Review is intended to be an unconstrained review of matters of possible interest to the Company’s clients and friends and is not intended as personalized investment advice. Advice is provided in light of a client’s applicable circumstances and may differ substantially from this presentation. Glenmede’s affiliate, Glenmede Investment Management LP, may conduct certain research and offer products discussed herein. Opinions or projections herein are based on information available at the time of publication and may change thereafter. Information gathered from other sources is assumed to be reliable, but accuracy is not guaranteed. Outcomes (including performance) may differ materially from expectations herein due to various risks and uncertainties. Any reference to risk management or risk control does not imply that risk can be eliminated. All investments have risk. Clients are encouraged to discuss the applicability of any matter discussed herein with their Glenmede representative. Nothing herein is intended as legal or federal tax advice.