Cross-border wealth planning: How to manage your family’s global interests

Enterprising global families are erasing physical borders in search of more opportunity to build and protect their wealth and legacy.

New research shows only a third (35 percent) of next-generation wealth holders see their financial needs being met domestically. And that sentiment is helping drive this generation further afield when diversifying their wealth.

It’s a shift in mindset Ross Jennings, head of sales and relationship management at RBC Wealth Management in London, says has coalesced over the past fifteen years.

“People’s perspectives are becoming more global and more accepting of the fact that you can look beyond your borders for opportunities, and importantly, employ professionals to do that for you,” says Jennings.

Forty-five percent of respondents in the Shaping tomorrow, today research identify as Millennials and are perhaps still in the early stages of assessing the international needs they’ll have in the future. This generation has grown up with relative ease to cross borders, making their views of operating internationally different to those in *older generations, where certain parts of the world were once considered off limits.

The RBC report, along with Campden Wealth, found 26 percent of those surveyed are running companies internationally and 23 percent have international banking needs. One-in-five own property in another country while 18 percent support philanthropic causes in other countries.

Of the respondents, the survey found ultra-high-net-worth individuals (UHNWIs) in Canada and the United Kingdom were more likely to look abroad than their counterparts in the United States. Brandon Williams, head of east coast private banking for City National Bank says “the motivations of a billionaire family are of course myriad.” However, he explains that a motivation from those in some countries to become international, or have cross-border interests, exists out of necessity.

The size of the U.S. economy makes the notion of expanding less of a necessity. Rather, it’s the dynamics of family that are sending wealth across borders. Commonly, says Williams, that expansion starts with a generation studying abroad.

“Now they’re educated in another country (and) as they become adults, they have a whole different network that they got from school, and they have a different set of experiences and perspectives,” says Williams. “So even if they returned home, they now have an expanded network outside of their home city or home country.”

Those new networks coupled with a search for opportunities, be it pursuing business interests, starting a family or buying assets in another country, create a unique set of variables. And with those variables come complications.

Taking your banking global

Even something like simple financial transactions or basic accounts can take on added complexity in a new country, says Williams. “Oftentimes you have to have a credit history… so how does a family member provide a credit background so that person can begin borrowing or open a bank account?”

And not just transactions, notes Jennings – the advisor-client relationship also becomes complex due to the nuances of cross-border regulation.

“If you have a client who’s migrating themselves around the world freely and they happen to be in 10 different countries in 10 different days (you) may have to change the dialogue or the content of what you talk about, depending on which jurisdiction they sit in.” he says.

For UHNWIs with an international lifestyle, this often means looking for an equally international wealth manager with regional presences. And the combination of global resources and a nuanced understanding of jurisdictional regulations becomes critical when business ventures are involved. Jennings often advises clients to try to concentrate activities into manageable bubbles by forming relationships with financial service providers in areas where they have assets, but focus the weight of that asset base in two or three financial hubs.

“If you’re going to buy a house someplace, sure, go down to the local branch and open a chequing account,” says Jennings. “But otherwise keep your assets as streamlined and as consolidated as you can.”

Tax and estate planning become complex across borders

At a certain point, as next generation wealth holders form a spider web of international assets, the question of wealth transfer comes up. “Generational wealth transfer as an issue has been around forever,” says Williams. But it’s an issue complicated by families’ increasingly global holdings and interests. That’s why UHNW families can gain great value in having their wealth manager at the table, alongside their external tax and legal advisors.

“We can talk through the implications of various choices,” he says. Because when it comes to estates and tax efficiency, the details always matter. “The wealthier the family, the more choices they have and the more complicated their plans become,” says Williams. “That can include account titling and how assets are owned – who owns them, who the obligors are on borrowing and the structure of those entities.” These are simple examples of how plans can take on increasing complexity.

International lifestyles, international portfolios

Investment portfolios have also started to develop a decidedly more globalized edge. “If you rewind 15 years, high-net-worth individuals – if they’re based in the UK – would have an equity portfolio full of UK registered stocks,” says Jennings. But that hyper-domestic focus has wavered.

“You can be based in the UK, you might have your assets managed out of Toronto and you could have custody (services) in Cayman,” he adds. “So I think the mindset has shifted within clients that, even if you live in the UK, why should you be buying a portfolio full of UK stocks? There’s lots of other opportunities in the world that you could be taking advantage of.”

But there are implications for investing internationally. Many countries tax income paid to foreign investors, regardless of whether it’s a dividend or interest income. Holding overseas assets or registered securities also runs the risk of other taxes. For instance, an UHNW Canadian with U.S. real estate, stocks and bonds, could be hit with unanticipated expenses related to estate taxes that may filter out to the next generation during wealth transfer. At the UHNW level of wealth, investing overseas has a lot of considerations.

But that doesn’t mean the complications aren’t worthwhile. Williams says, like any form of managing wealth across borders, the goal isn’t to focus on complexities, it’s to get to the “why”?

“I don’t think we can prevent the client from becoming overly complex,” he says. “What we must do is understand their motivations.” And that’s what helps shape a personalized wealth management journey.