Barbara R. Hauser of Barbara R Hauser LLC discusses the various steps and challenges involved in helping families manage their multi-jurisdictional wealth in an effective and sustainable way.
Date: Apr 2012
Tags: Wealth planning, Succession planning, Trusts, Inheritance tax
First, she does an ownership audit, in terms of assessing what the family owns legally. Secondly, in relation to structure, she looks at whether it makes sense to have a trust as a master vehicle to hold all assets. Thirdly, she weighs up individual jurisdictions and what they offer, effectively “forum shopping”. And finally, she tries to help families avoid inheritance fights that ruin the wealth.
Ownership audit
Using the simple example of vacation homes, Hauser said she finds that very wealthy clients tend to buy homes wherever they want to, yet the professionals who help them in this process typically don’t tell them about all the complexities and risks involved in owning a home in another jurisdiction.
For example, investors who buy homes in the US might not be aware that, at death, they are subject to US probate or US state taxes, she explained.
As a result, the first step for a family, said Hauser, is to be careful and accurate about exactly what it owns and where those assets are, to determine which laws will apply in terms of inheritance tax.
Using a trust
According to Hauser, it is tempting to organise everything within either a holding company or a trust; she said she prefers trusts because of the long history in trust jurisdictions of protecting the beneficiaries.
She said it can be difficult to convince anyone who doesn’t live in a trust jurisdiction to use a trust, for example families in Switzerland or in the Gulf region.
However, she added that there is growing interest by families around the world in using a trust to protect their family wealth over a long period of time.
Choosing the right jurisdiction
When choosing the right jurisdiction for an individual family, Hauser said considerations range from simple geographical access to stable and long-term trust-law jurisdictions.
This process involves a psychological quirk, she said, where people tend to prefer the trust jurisdiction to be far away from their home country. There are also geo-political concerns, she added, in terms of the trust company being in a “safe” location.
Other influencing factors include the management, ease of access and tax issues, added Hauser.
Today, for example, she said that nobody she talks to around the world wants to choose the US anymore.
Strong governance in practice
Hauser said she has learned by experience that when a founder passes away, the children are likely to hire lawyers to fight each other over the family wealth. This is bad for the family as it ruins the wealth and breaks up family businesses, she explained.
As a result, she spends a lot of time working with families to help them create their own governance system.
This involves, as a first step, creating a constitution and then deciding who is going to be able to make which rules, how they will be followed and how they will be changed. A family can then have a framework to discuss and listen to each other, to agree on a set of rules.
Misconceptions for families
When managing their wealth through the process outlined, Hauser said one of the misconceptions is that, as a family group, they don’t tend to want to talk about what they own or the family wealth, because they consider it a private issue.
