Alt Investments
Estate Planning, Wealth Preservation With Precious Metals
The author of this article presses the case for precious metals when used in estate planning and wealth preservation. Recent moves in the gold price certainly add fresh edge to the argument.
Precious metals such as gold play an important role in protecting wealth, and the case for gold, for example, has been given fresh impetus by its price rise of over $2,000 per ounce in recent days. Gold remains an important wealth management and private banking asset.
To discuss these issues is Joshua Rotbart, of his eponymous firm J Rotbart & Co. In March, the boutique firm unveiled a partnership with Blockpass, a blockchain-driven KYC-as-a-service platform business. J Rotbart & Co works with clients in Singapore and Hong Kong to sell, buy, store and ship precious metals.
The editors are grateful for these insights; the usual editorial disclaimers apply about the views of external contributors. To jump into the conversation, email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com
Precious metals, especially gold, have maintained their standing
as symbols of prosperity and wealth throughout human history. As
limited resources that must be mined and extracted, their
scarcity adds to their value.
This value has grown steadily over time, often outpacing other
investments such as stocks and fiat currencies. Precious metals
have withstood historic cataclysms, protecting their owners’
wealth through economic turmoil since the dawn of civilization,
and have allowed them to pass on their fortune to their heirs for
generations.
Physical precious metals, such as gold bullion bars and coins,
continue to be a prudent and reliable safe haven for wealth
preservation and should be seriously considered during estate
planning.
Precious metals preserve wealth
While many people believe that fiat currencies are only worth the
paper they are printed on, precious metals have always been held
in high esteem. History has stood by precious metals as a store
of value and tangible assets that are easily transferable and
liquidated.
Gold and silver were used as currency for thousands of years,
long before countries established their own fiat currencies. Even
then, and all the way to the 20th century, they valued their fiat
currencies based on a gold standard, meaning that fiat currencies
were pegged directly to gold. Today, government central banks are
still procuring gold (1), to have a larger degree of financial
freedom and to bolster their fiat currencies, further confirming
gold’s status in wealth preservation.
Gold withstands economic turmoil
As of this publication, economies around the world are reeling
from the effects of COVID-19. But as fiat currencies and stock
markets are plunging and wildly fluctuating, gold has held strong
(2), even soaring in value. During turbulent times such as these,
investors realise the benefits of precious metals such as gold.
There are no counterparties (3) to contend with, nor are there
regulatory limitations or obstacles hindering purchases, trades
or sales, which is what may face holders of ETFs, or “paper
gold”, and other financial instruments such as shares.
Gold is proving itself once again as a great hedge against market
downturns as physical gold is a stable and relatively risk free
asset. Investors turn to physical gold in times of distress as it
is not issued by a single authority and cannot go into default.
Gold is a tangible asset owned fully and directly by its
holders.
Gold has been a trusted asset against financial meltdowns through
the course of history (great examples can be seen during the 2001
and 2008 financial crisis), as investors turn to gold to hedge
their risks.
Gold ETFs and ’paper gold‘ are as good as the company that issued
them, meaning that, if the issuing company goes into default or
goes bankrupt, it is likely that the investors will not be able
to be fully compensated based for their “paper”
holdings.
Economic policies can affect gold prices
In addition to unpredictable or collapsing markets, governments
are stepping in to help by implementing quantitative easing (QE).
QE is a policy whereby a central bank injects more money into
circulation on order to increase money supply and investments in
the markets through such actions as buying government bonds. The
idea is that, with low interest rates and more money available,
banks will lend more, and businesses will continue to operate.
Unfortunately, QE can lead to inflation and money losing its
value when more and more of it is being printed. This often
negatively impacts most investment instruments except for gold,
as its value tends to increase with inflation (4).
Precious metals should be part of every investor’s
legacy
Experts (5) highly recommend diversifying wealth portfolios with
precious metals. Investors want their investments to at least
maintain its value, but they prefer to see these nest eggs grow
over time.
Precious metals such as gold are not only an excellent hedge
against market downturns, but analysts time and time again see
gold as a sensible, if not profitable, asset class for the future
(6). Gold is a great diversifier to one’s portfolio as it
combines minimum risk with long-term price appreciation. If the
economy is doing well, gold is purchased in the form of jewellery
and investment for the future. If the economy is doing badly,
gold usually acts as a balancer to the investment portfolio.
Physical gold bullion, whether in coins or bars, is a tangible
commodity that does require planning and forethought when
purchasing. They are valuable assets and vital for protecting
your wealth and your family’s future, so you want to ensure that
it is bought, stored, and allocated securely and done so in a
professional manner with a reputable company.
Keys to estate planning with precious metals
When planning your estate, you may want to take special
consideration regarding tangible assets such as precious metals.
As shown above, gold is perfect for passing wealth through
generations.
Also, it is one of the very few assets that appreciate in value
over the years and that can be physically redeemed with minimal
process and costs. Although most of our clients invest in gold
under their personal name, about 10 per cent of them would do so
under a trust or foundation. This allows clients flexibility in
terms of how the gold is handed down. A designated third party
acts upon your instructions when the trust is triggered. This can
include when and how your assets are distributed. Through trust
and foundation structures, you can provide certain levels of
privacy and protection against taxes and litigation to your
beneficiaries.
Furthermore, you may assist in easing the handling of your
affairs by avoiding probate and other potentially costly legal
processes. To determine the best course of action, you should
seek expert advice to ensure that your wishes, and your heirs,
are well taken care of. The decision on how to hold the gold
should be viewed in light of the overall estate planning.
Tips on acquiring precious metals
We meet many families when they start looking at how to pass
their wealth on to the next generation. Many of the conversations
are about how to secure their investment and what is the best way
to set up gold trading and, mostly, its custody. When acquiring
physical precious metals, you should go through an experienced,
well-known firm that deals with reputable refineries and mints.
An ideal way to ensure authenticity and purity is to demand that
sources be members of the London Bullion Market Association
(LBMA) or the London Palladium and Platinum Market (LPPM).
Members of these organisations are obligated to meet certain
standards, such as Good Delivery (7) rules for bullion bars and
coins. You should also receive full documentation of all
purchases, including serial numbers for each item.
Once purchased, it is highly recommended to store precious metals
in private vaults that offer state-of-the-art storage facilities
with the latest security technologies and ensure that full
liability coverage is provided. This is the recommended setup
when buying gold for succession purposes planning. If you are
storing your bullion as suggested above, you may want to create a
joint account with your beneficiary/beneficiaries so that
ownership can be transferred relatively smoothly. With a joint
account, there should be a clause in the storage contract
guaranteeing that the other account holder has immediate access.
But if all account holders pass away at the same time, these
assets may end up in probate, causing bureaucratic processes that
may not be welcome during a difficult time.
Precious metals are fundamental to wealth preservation
and estate planning
Preserving wealth and prudent estate planning are how we all take
care of our families. By ensuring diversification in our
investment portfolios with precious metals, we strengthen the
value of the bequest we leave behind for our loved ones. And with
careful and well-advised estate planning, the benefits of these
precious metals can continue through generations.
Footnotes:
1
https://jrotbart.com/gold-what-happened-in-2019-and-what-to-expectin2020/#1_Central_Banks_Noticeably_Increased_Gold_Purchases
2
https://jrotbart.com/what-to-do-during-the-coronavirus-crisis-stay-financially-healthywithgold/#Protect_your_Gold_and_Precious_Metals_against_Covid-19_with_gold
3
https://jrotbart.com/how-should-you-buy-gold-physical-vspapergold/#4_Safe_Haven_from_Counterparty_and_Other_Risks
4
https://economictimes.indiatimes.com/wealth/invest/factors-that-affectgoldprice/articleshow/64464960.cms
5
https://jrotbart.com/joshua-rotbart-discusses-gold-as-an-investment-withpearlmagazine/#Top_portfolios_hold_3-10_of_their_value_in_gold
6
https://www.gold.org/sites/default/files/documents/goldinvestmentresearch/the_impact_of_inflation_and_deflation_on_the_case_afor_gold.pdf
7 http://www.lbma.org.uk/good-delivery-explained