The challenge of succession planning and international wealth transfer came under the spotlight when experts debated these topics at the recent WealthBriefing summit in Geneva.

Luminaries from across the wealth management industry gathered at Geneva’s President Wilson Hotel recently to discuss the ins and outs of international wealth structuring and transfer.

With laws varying so significantly across jurisdictions, high net worth individuals, who typically have assets sprawled across an international playing field, need to be constantly mindful of succession planning. In short, you can’t be a resident of the world and have that accepted by a good number of tax jurisdictions; it pays – or saves rather – to be on top of shifting laws in any country where you have assets.

As families continue to internationalise, it's easy to imagine a lot be of to-and-fro in courts between, for example, where property is held and children are domiciled, but the EU Succession Regulation (or Brussels IV) is starting to take effect and it aims to be the heal-all for cross-border succession woes, at least for the majority of EU member states that have signed up. How much will it actually simplify the very complicated area that is cross-border estate planning?

These were some of the points discussed at the WealthBriefing summit. Chaired by Paul Astengo of Gibraltar Finance, the panel consisted of: Adzam Yusof, head of Citi Trust Europe, Middle East and Africa at Citi Private Bank; Nicolas Hars, head of wealth planning solutions at Societe Generale Private Banking; Stephanie Jarrett, partner at Baker & McKenzie; and Nadine Goldfoot, partner at Fragomen Worldwide.

The event was sponsored by Appway, Gibraltar Finance, ProFundCom, smartKYC and Thatcher Mackenzie.

A tangled web

Straight away, rising international regulation was flagged as the top issue facing financial institutions today. The fact that different countries are setting different rules at different times makes legal and compliance systems a real challenge, said Yusof.

The Common Reporting Standard (CRS), an information standard for the automatic exchange of financial account information, will come into effect at the beginning of 2016. It has been welcomed by some as a necessary move towards tax transparency and received more cautiously by others, who fear an increasingly complex environment where client privacy is at stake.

“Regulatory change tends to restrict flexibility and create uncertainty when trying to plan intergenerational wealth transfer. CRS is meant to catch tax cheats, who should be caught, but the implementation won’t be simple and there are still many issues within the CRS regime that need further clarity,” Yusof said.

“Client privacy will be impinged upon as the number of jurisdictions holding private client provisions extends so the key thing we need to ensure is that all countries within the regime have sound data protection laws.”

Another issue he raised was that some of the costs involved in developing the standard, collecting the data, reporting, processing, for example, will likely seep through to clients. In the longer term, Yusof predicts unintended consequences arising from tax transparency, predominantly an erosion of the legal separateness of assets held by trusts and companies. The bottom line is regulations are here to stay and fiduciary companies must be ready for tomorrow’s standards today, he said.

A one size fits most model

Hars of Societe Generale Private Banking called attention to the facts at hand, including the 450,000 cross-border successions that occur in the EU per year, representing a total value of more than €120 billion ($130 billion), as well as the 12 million EU citizens who live outside their country of nationality.

Under the recently-enacted EU Succession Regulation, individuals will be able to decide whether they would like their estate to be handled by the law of their country of nationality or by that of their last habitual residence. There will then be one court in one jurisdiction applying one single law to deal with the wealth transfer. In theory, this should allow an individual to succession plan with 100 per cent certainty over which laws will apply to their estate.

So, the new directive is a big deal for those who have relocated, those who have invested in properties abroad, and those who may wish to opt for one law over the other, according to Hars. 

“The European Certificate of Succession will allow heirs to inherit easier, faster and cheaper,” said Hars. “But it only covers 25 out of the 28 EU member countries. Denmark, Ireland and the UK do not take part in the regulation and succession procedures here will continue to be run by their national rules, in which case there is risk of conflict of law.”

For Jarrett of Baker & McKenzie, there remains uncertainty as to whether the directive is really going to help ultra-high net worth families who are so diverse and have properties and assets in so many different places, not just within the EU.

Business interests vs family interests

Goldfoot of Fragomen pointed out that burgeoning wealth is most stark in emerging markets and these high net worth individuals are looking to safeguard themselves, their families and their money from instability in their home countries. Given that some jurisdictions favour business over family wealth preservation, she delved into the analytical process used when advising clients from an immigration perspective where to domicile their family assets and their business assets – and when determining whether a family is best-matched to a jurisdiction focused on encouraging entrepreneurship, such as Singapore, or one where personal needs are met and the investment requirement is more passive.

“It is vital to look at the push and pull factors i.e. what is motivating them to consider alternative countries of citizenship and residency. These vary quite considerably, from personal, lifestyle choices of which the education for their children is usually paramount, to the security of their families. From a business perspective, key factors include investment opportunities overseas, prospects for diversification of assets, as well as tax and wealth planning,” Goldfoot said.

Goldfoot pointed towards the perks of moving over to a European system, which offers various opportunities for citizenship and residency for high net worth individuals, the UK’s Tier 1 investor scheme being one of them, and also the various gateway options such as Malta or Cyprus. As for family and children, she said the benefits across the EU are vast – the most obvious one being education, namely access to EU-wide education systems, but also stability and security.

So which usually wins: the business drive or the family drive? From the panellists’ experience with their clients, it is overwhelmingly family first. “Tax is not their one and only issue though it does of course need to be considered; their main concerns are lifestyle, environment and their children,” said Hars.

Jarrett highlighted how important it is to go through the implications of any such move with a fine toothcomb. Ramifications wealthy clients often overlook, she says, include the extent to which relocation can affect matrimonial agreements, will(s), or even the split of assets between a family member and their partner. This will become even more important for families with the erosion of privacy.

What are the implications of family members not getting married, but living with their other half? In some jurisdictions, after a few years or even months, the less wealthy party may have a claim on the other’s estate, said Jarrett.

“It is the basic planning that needs to be looked at very carefully,” she stressed. “If international clients want to avoid going to court, into arbitration, into mediation, or the like, you want to try and have the estate planning organised as well as possible upfront.”

In an environment where governments are looking to restrict immigration, high net worth individuals remain a preferred group of migrants, but a continually changing regulatory landscape means its up to wealth managers to ensure their clients are fully up-to-date with what different jurisdictions have to offer, plan ahead and ultimately safeguard their wealth.