Riches to riches across generations
By D. Murali
One of the primary purposes of a structured approach to a family asset and wealth management is to minimise taxes wherever possible, says Mark Haynes Daniell in ‘Strategy for the Wealthy Family’ (www.wiley.com).
The book, which is about ‘seven principles to assure riches to riches across generations,’ begins by describing a different world: a discreet one, “of the respected super-rich, where family legacies, high-return portfolio investments, successful family businesses, philanthropic endeavours, and protective trust practices have been refined and have evolved to reach the highest levels of excellence in private wealth management.”
The author draws on ‘the closely guarded knowledge of this inner sanctum’ and assures us that it is possible to beat the proverbial curse, ‘riches to rags in three generations’. Talking of sayings, the analogous ones are: ‘fu bu guo san dai’ (Chinese for ‘wealth never survives three generations’); ‘clogs to clogs’; ‘shirtsleeves to shirtsleeves’; and ‘paddy field to paddy field’.
True family wealth is more than money, declares Daniell. It also includes “family harmony, physical well-being, a broader sense of legacy and reputation, integrity, spiritual growth, intellectual capital, and the personal happiness of each family member.”
Wealth preservation is all about managing risk, and structuring asset ownership and control, the author guides. Anticipate the flows of history, he says. “Many of the worst blows to family fortunes have been struck by external events that no single family, however wealthy or powerful, could have prevented.” Blows could come in the form of wars, asset bubbles, confiscatory tax regimes, ethnic persecution, nationalisation and so on.
Socialist-inspired confiscatory regimes in Europe and elsewhere caused the economic demise of many families, during the second half of the twentieth century, recounts Daniell. Rates were exceptionally high: “Income tax (up to 83 per cent), capital gains tax (up to 98 per cent), and inheritance tax (at rates up to 77 per cent).”
Many countries have realised that exorbitant tax rates can lead to flight of capital, both human and financial. However, “with Western European countries and Japan facing dramatic reductions in population, ageing populations, rising state welfare costs, increasing healthcare burdens, and, in the case of the UK, declining long-term oil revenues, a return to higher rates of tax across the board is not impossible to contemplate in a less advantaged and poorly managed future,” foresees Daniell.
An apparently simple tax advice he offers to wealthy families is to determine how and where they wish to live, and then plan their taxes accordingly. Because, “very broadly, your residence (where you live and work) defines the country in which income taxes are paid. Your domicile (the country in which you have an ‘indefinite intent to remain’) will dictate where you pay estate or death duties.”
Tax and estate planning benefits to be gained by changing nationality, domicile, or residence can be well worth considering for some wealthy families, particularly those in the higher categories of wealth, the author notes. “Many have decamped to places – notably Switzerland, Monaco, Dubai, and the Caribbean – where tax rates are more attractive, bank secrecy standards are high and disclosure obligations are low. Such a tax haven is known to the French as a paradis fiscal.”
Before rushing to make the major relocation decisions, remember the flip side, too, that Daniell highlights: “The lack of proximity of friends and family, the loss of national identity, isolation from various communities, and other lifestyle changes…”
Wealth of counsel.
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