Substantial wealth is always under threat
In the ever-changing financial environment, wealth planning plays a vital role in preserving and transferring wealth to the coming generations in an orderly and well controlled manner.
The wealth you have accumulated open doors and create possibilities for you and your family, your business and the causes you support.
Wealth also attracts interest from governments and authorities, the media and the general public. With careful planning, unwanted attention and the problems that might arise from such attention, can be avoided or kept to a minimum.
Three generations and your wealth has vanished
Wealth is often generated by only one generation. Research shows that without planning that wealth properly, it on average completely disappears over the next three generations. Taxes such as wealth tax, estate and inheritance tax and income tax can for example take quite a big bite out of your family’s wealth. But there are also regulatory and legal challenges and in certain countries increased political, religious and economic risks and instability to be taken into account.
Potential threats to your wealth
Other potential threats to your family’s wealth are e.g. assets being frozen on death, matrimonial disputes or disputes over the devolution of your estate. Non-financial reasons to implement wealth planning solutions are e.g. disputes over the control of the family business. Protection from creditors must also be taken into account. The list of possible future creditors includes your own creditors and the future or present creditors of your companies, fellow shareholders, family members and beneficiaries.
What is Asset Protection?
Asset protection are strategies to minimize the risks that your wealth is exposed to. Your family wealth is always at risk, be it from operating activities, fellow shareholders in your family business theft or fraud. Not all risks can be mitigated, but you should employ strategies to protect your family wealth from the most obvious risks. Below you will find some of the risks that your wealth is exposed to.
Your family business might be at risk from claims from customers or third parties. As a minimum asset protection strategy, you should transfer accumulated profits from your operations to a holding company to mitigate operational risks. A holding company in your own jurisdiction will suffice in most cases.
What happens if a business partner gets a divorce or dies? Will the shares of your company be locked up in lengthy probate procedures? Make sure that you have an up-to-date shareholders agreement and that all partners have prenuptial agreements. If your or your children go through a divorce, prenuptial agreements can facilitate the procedure and you will always know where you stand.
To protect yourself against insolvency risks, you should employ strategies where part of your wealth is segregated from your own person. This may be achieved with specialized insurance products such as Private Placement Life Insurance where an insurance company acts as a trustee for your assets. If correctly structured, third parties may not be able to seize those assets and they will not be subject to probate procedures in case of your death.
It may be that the younger members of your family have not yet learned the value of money. To protect the family wealth, so-called trust funds can be setup to “portion” out liquidity at your preferred rate or at certain events such as graduation, buying a home or getting married.
In today’s transparent financial environment, an old non-compliant wealth structure can be costly. Many jurisdictions impose fines reaching 100 % or more of the assets that you have not properly declared. Offshore assets kept in not compliant structures are subject to huge additional taxes that are in some cases charged on paper-returns, meaning that even though you have not yet realised your profits, the increase in value of your assets will be taxed.
Provident Partners can assist in mitigating the risk your wealth is exposed to and we look forward to discussing your specific asset protection needs, challenges and opportunities.