William Ahern of Family Capital Conservation explains the various issues, considerations and tools involved in advisers putting in place a robust and appropriate succession plan for wealthy clients.
Date: Mar 2010
Tags: Succession planning, Wills, Tax, Trust, Wealth transfer, Assets, Anti-money laundering
Guiding clients in the wealth planning process
According to an interview with William Ahern, the best way for advisers to help clients address their issues related to succession planning – and any taxes which might be connected – is to identify various things such as the nature of the clients’ assets, where they are held, where their children are, and the clients’ desires in terms of passing on their assets.
For example, explained Ahern, when looking at passing assets to their children, clients need to decide on timing – whether it should be before or after death, and also on whether they want the children to have the income or the capital.
These are challenging issues to deal with, he said, especially for advisers who have clients with several private banking accounts.
In these cases, Ahern said advisers tend to be nervous about prying too far. At the same time, clients with multiple banks are resistant to telling each bank everything about their affairs.
In many instances, he said, clients have found that after they confide in their adviser and establish a trust – which requires the client to be open about their assets – the adviser might then join another organisation, and ask the client to move the trust. Yet private clients do not like such changes, said Ahern.
These dynamics make it necessary to be the adviser who sits on the same side of the table as the client, to become a trusted adviser.
Tools for succession planning
For an adviser to be an effective agent in helping a client transfer their wealth seamlessly to the next generation – not only does the adviser need to know everything about a client’s assets and intentions, but also the adviser must understand the tools available.
The first of these is a will, said Ahern, so advisers need to know how they work. And in cases where clients have assets in multiple jurisdictions, it might be a smart idea to have a separate will for each jurisdiction.
Trusts are another tool advisers can use. With trusts, Ahern said advisers need to know whether it is feasible for the client to transfer a particular asset from the client’s own name into a trust.
This might incur various taxes or stamp duties, he explained, so the adviser needs to determine whether it is worth setting up the trust in the first place.
Ideally, Ahern said advisers should have a general and basic understanding about the available tools – for example, how taxes, trusts, wills and partnerships work – and then know the types of problems which can arise in certain jurisdictions, either in terms of where the asset is, or where the child is.
He said it isn’t realistic for an individual to understand how all the tools work in every jurisdiction around the world.
Advising the next generation
When looking at the next generation, Ahern said there are various tax issues for advisers to consider.
In Hong Kong, for example, there is no estate tax and no tax on offshore earnings, but a child might live in a jurisdiction like Canada, the US, Australia or the UK.
So when the parent dies in Hong Kong, there might not be any tax levied on the asset transfer, but once the child receives the asset, it can create a jurisdictional problem in relation to where the child is.
Advisers therefore need to understand these issues, and then identify counterparts around the world to give them the specific details and answers when necessary, suggested Ahern.
This is a key thing for advisers who want to get close to their clients and help them develop a sensible, defensible and fair succession plan, he explained.
Issues for assets distributed internationally
When it comes to assets distributed in various countries around the world, Ahern said advisers need to know whether clients can hold certain offshore assets in trusts located in other markets.
It is important to know a client’s domicile, because he said the law of an individual’s domicile tends to be the one which governs the succession of all assets except real estate.
The law of the country where the real estate is located tends to be the one which governs the succession.
Anti-money laundering (AML) issues
According to Ahern, anti-money laundering considerations are another important part of the advisory process.
In Hong Kong, for example, advisers face difficulties if they ask questions about money laundering but don’t get satisfactory answers, because they are then obliged under the law to file a suspicious transactions report.
In these cases, they should not touch that clients’ money, warned Ahern.
