Every professional has a secret wish to be Liam Neeson, the actor who plays the protagonist in the film Taken – and say the line “I have a very particular set of skills” – and then go on to singlehandedly save the day. 

These days, serving high-net-worth clients is not that different from helping them fend off those who want to get a piece of what they treasure most. The “particular set of skills” here includes cross-jurisdictional knowledge of legal systems, trust law, tax law, insurance regulations, investment know-how, bank financing nuances and mediation skills. The most challenging part is integrating all of that knowledge and explaining it to clients in layman terms, while also motivating them to act.

The current global situation makes this “particular set of skills” useful – the impact of the coronavirus on the Chinese economy and global supply chain; the recent legislation in Guangzhou that hints at potential encroachment on private property rights; the continuing theme of state advances and private sector retreats; the irreversible trend of global tax transparency; and the tension between global powers.

With the trends above, high-net-worth individuals should know the importance of international asset allocation, which if properly executed, could diversify risks without impacting return.

The tax consequences 

Those who have already diversified their assets geographically have already taken a step in the right direction. But the devil is always in the details. Take, for example, a Chinese citizen who has an insurance policy in Hong Kong, and children in the United States. In the foreseeable future, his children might need to pay up to 40 percent tax when they receive the insurance proceeds because the policy is not treated by the Internal Revenue Service as U.S.-compliant, and hence the proceeds will be treated as an investment gain.

Another example is the Chinese citizen’s wife, who has an insurance policy in Hong Kong, and will, in a few years’ time, become a U.S. citizen. She will be facing a lot of filing obligations, non-compliance of which will incur a penalty and even jail time.

These are real, overwhelming problems that most people would want to sweep under the carpet. Finance professionals can help bring clients clarity and peace of mind by helping them understand practical policies for different future family situations.

Setting up a firewall 

In addition to global tax complexities, another issue a global citizen would face is protecting assets from various forms of risks, such as creditors, divorce risks, government, litigation, etc. Setting up a firewall to shield current and future assets from those risks is the first step.

A trust, as a tool, is gradually becoming more common. But there have been well known cases of trusts going wrong. This is why, as opposed to just one trust, you need the right set of tools, strategies and skills to ensure your client has various structures that fit different purposes. The key things an advisor should know about when it comes to setting up a trust will be covered in the Institute’s e-series – “An introduction of international tools for global high-net-worth individuals” in the coming months. Through this e-series, participants will be able to fully understand the various types of trusts, how to set them up properly, and how clients can benefit from them.

About the workshops 

The Strategic Succession series of workshops, which will run later in the year, aims to help participants learn about the operation, benefits and advantages of international trust structures and insurance tools. It also aims to discuss family succession planning best practices, including the key principles in establishing a family governance system. The workshops will conclude by covering the proper use of insurance tools, clearing up misconceptions regarding how to properly assess the sufficiency of the insurance coverage of a family. After taking the workshops, members will be able to help their clients with insurance planning and international tax optimization, while maintaining control over investment returns. This workshop would benefit chief financial officers, financial controllers and accountants.

With the right tools and knowledge, advisors can help make the long road of succession planning a fruitful journey for their client’s family, for generations to come. Watch for enrolment details on the Institute’s website.

Edwin Choi is Legal Counsel at Cosmos Management Consultancy Limited, a multi-family office specializing in helping families conduct succession planning. He is a non-practising solicitor of the Hong Kong High Court, and a former part-time lecturer of the Faculty of Law of The University of Hong Kong. He frequently provides training to finance professionals in Hong Kong, Mainland China and Taiwan, and offers private consultations to high-net-worth individuals in those regions.

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