Politics, emigration and the modern family are only a few of the challenges of wealth and succession planning today

There is no lack of data on the vast, and growing, amounts of wealth set to be passed from generation to generation in the coming decades. In 2019, the global number of dollar millionaires passes 20m while, over the next five years, the number of ultra-high net worth individuals (those with over US$30m) is expected to rise by 22% (Wealth Report 2019, Knight Frank). For clients considering how to ensure their wealth survives generational transfer, and is subsequently put to best use, the uncertain world in which we now live can seem distracting and hostile. Unsurprisingly, there is plenty to worry about.     

In the UK, while we enjoy a moment of respite from daily Brexit headlines, the immediate panic around the UK’s future relationship with the EU has given way to discussions over the next leader of the Conservatives, as local election results confirm a widespread disenchantment with the main political parties. Were Labour to come to power, some of the suggested reforms don’t bode especially well for wealth and succession planning; tax at 45% on income of £80,000 or more and at 50% on income of at least £123,000; an excess levy on salaries above £330,000; and an increase corporation tax to 26% are among the changes floated since the 2017 party manifesto. However, there can be no certainty that the existing tax regime would remain stable even under Conservative leadership. Meanwhile, in Europe, the rise of populism seems to threaten the integrity of the European Union, and global market confidence isn’t helped by the US’ international agenda or expectations of a cyclical slow down over the next couple of years.

But uncertainty isn’t a phase; rather, it is a fact of life.We now live in a society that is more globalised, technologically advanced and mobile than ever before. Global trade openness is around the highest it has been; data, capital and investments move freely; and individuals and their families are increasingly dispersed. More than a third of wealthy clients hold a second passport or nationality, 48% sendtheir children to universities abroad, and 26% are considering emigrating permanently (WealthReport2019). So why should clients expect anything but uncertainty? More importantly, why shouldn’t they insist on wealth planning solutions that will protect against that uncertainty and remain effective regardless of what the future holds?

Some of the difficulty lies in the fact that wealth advice, perhaps with the exception of larger multi-national advisory outfits, has grown from a domestic focus. While it is only natural that tax and other efficiencies at home be considered first, this should not be to the exclusion of foreign issues or at the expense of ultimately needing to wind down and replace planning structures on a change of residence. Similarly, wealth structures engrained in domestic law may not have been conceived to be effective abroad: an English law trust would historically not have needed to contend with a non-UK (or at least non-common law) country, such as Spain or Sweden, where, today, it is unlikely to deliver all of the objectives for which it was established.

Add to this the intricacies of modern family life, which is punctuated by the uncertain and unexpected – separations, divorces, marriages, births, deaths and remarriages, and the resulting extended families held together by formal or informalties–and consider that the nature of family relationships evolve, with individuals falling in and out of favour with each other over time. A long-term wealth and succession plan should remain relevant despite these changing circumstances.

Fortunately, solutions exist that can deliver, if not total certainty, then optionality and flexibility. For example, insurance-based planning permits the deferral of tax on a portfolio of investments regardless of what the medium term may have in store politically, allowing clients to ride out any eventual fiscal and other changes while deciding whether to remain in a country or leave. Insurance solutions are recognised across borders in both civil and common law jurisdictions, removing the need to restructure should wealth owners or their relatives move. Furthermore, not only can wealth be clearly set aside for intended beneficiaries but access to that wealth, for example by young descendants,can also be moderated until they become financially mature enough to manage their inheritance as originally intended.

Globally, more than 60% of advisers expect the political and economic environment at home and abroad to make it harder for clients to create and protect wealth in 2019 (Wealth Report 2019). However, uncertainty in wealth and succession planning will neither be short-lived, nor limited, to geopolitics and the economy. Modern high net worth lives are inherently uncertain–as they should be. The challenge is for advisers and wealth managers to find solutions that can cater to the resulting complexity, while giving clients one less thing to worry about.