Three ways to protect your family wealth in times of uncertainty

Family and asset protection, succession planning and relocation are the core areas to focus on, says Julius Baer

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The Covid-19 crisis has been an unprecedented challenge for humanity and a shock to the global economy. What have we learned from the crisis? Wealth planning experts expect to see trends developing in three core areas: family and asset protection, succession planning and relocation.

Family and asset protection

Considering the speed of change in the world today and the challenges the coronavirus pandemic has posed to globalisation, we have been consulted from different quarters about how to best protect families and their wealth in these times of uncertainty. Some families have taken the time to think on how to plan ahead to mitigate the risks that this crisis has posed to them and their assets.

As some countries lack borrowing capacity, they need to find other sources of revenue generation to respond to Covid-19. A handful of countries have already reacted by issuing draft legislation about increasing solidarity taxes to be borne by the wealthiest parts of the population. Others are looking into taxing digital platforms, to VAT increases, or imposing stricter measures in the enforcement of tax collection. Aside from the negative effects that an increase in taxation could have for the economy as a whole, what does this mean for high net-worth individuals and their families?

If executed properly, wealth structures may prove to be a useful vehicle, providing protection and consolidation. More importantly, they may mitigate risks and guarantee accessibility to assets in an efficient manner by providing liquidity in times of need. Examples of such structures could be trusts, foundations, life insurance, private label funds, companies, wills, or other legal arrangements.

In times of crisis, priorities shift and our crisis-defined experiences flag the way towards finding new values. Whether a certain wealth structure is suitable for a particular family or not will depend on those values, on family objectives, country of residence, family members affected, applicable legislation and the type of assets involved. Unfortunately, doing nothing is no longer an option.

Succession Planning

Since the beginning of the 21st century, we have suffered multiple financial crises, from the dot-com bubble bursting, 9/11, the 2008-09 global financial crisis and now the Covid-19 pandemic. We have seen wealth both increase and disappear in the flash of a moment. The past 20 years have made it difficult to build wealth and to maintain it, especially through financial markets. Protection and conservation of wealth will become more relevant as older generations realise that it will become increasingly challenging for the next generation to build their own wealth, through no fault of their own.

The pattern that is starting to appear is unique to our time. Until recently, the notion was held that the next generation would be better off than the previous one. Asset and family protection will now become more relevant than ever. This means that much more will be required than simply reviewing a last will and testament or an advance care directive once in a blue moon. A regular review will be vital ‒ preferably annually ‒ and should become standard practice for everyone.

Citizenship has shown itself to be more than merely another passport; it has proven to be a lifeline, a window of opportunity for returning to a safer haven. In a world in which borders were perceived to no longer exist, such as the European Economic Area, Covid-19 demonstrated that those country borders still significantly impact the free movement of people and capital. In the future, we expect to see a rise in the number of people placing increased value on their citizenships and people exploring ways in which to activate those citizenships to which they are entitled (by birth), as they have now come to realise their real value.

Under normal conditions, the preferred place of residency is often determined by factors such as quality of living, access to education, clean environment and safety. However, going forward we expect people to be more concerned with other primary factors that have gained in importance, such as access to health care, the availability of supporting infrastructure, the possibilities of (speedy) repatriation and the general handling of crisis scenariosCountries that handled the crisis well will become more popular. This will not only feature the short-term considerations of mortality or infection rates, but will take in the length of time it took for the country to recover economically.

Roger Stutz is the head of wealth planning at Julius Baer