Over the recent years, “private wealth management” has become a trendy concept which is very familiar to us. There are few high-net-worth individuals whose assets are located solely in their home countries or who do not consider to design a plan for their overseas assets. With the implementation of CRS aimed at facilitating the exchange of tax information among countries, foreign elements become indispensable factors to be considered in “private wealth management”. Then what are the most common foreign elements in the private wealth management?
(This article was first published on China Business Law Journal column"Practitioner's Perspective", authorised reprint)
Foreign elements of the subject. Given the private wealth management covers a large number of family members, it is inevitable that some family members have obtained or are planning to obtain the nationality or permanent residency of other countries, or settle in other countries. In this case, it is necessary to pay attention to the changes in the tax status due to the changes of identity. Meanwhile, the influences on validity of the agreement caused by laws of different jurisdictions shall be noted when drafting legal documents in respect of private wealth management.
Furthermore, in some situations, clients will actively arrange to get foreign residency when planning private wealth management. The common circumstances are as follows: (1) Given most countries set restrictions on identity in respect of specific assets or investment, when allocating assets globally, in order to break through such restrictions, some family member have to obtain the nationality or permanent residency in accordance with relevant regulations; (2) Plan to get a foreign tax residency so as to avoid tax reasonably by holding assets under another identity or completely changing his/her tax status.
Foreign elements of assets. In order to diversify risks, in addition to equipping with a variety of assets, high-net-worth individuals also have an increasing demand for overseas investment and the investment amount is on the rise. There is a broad scope of investment subjects, including but not limited to financial assets, real estates, equities in listed companies, equities in other companies, planes, yachts, artworks and intelligent properties. Conditions specified by laws and regulations in different countries or regions in respect of obtaining, transfer or damage assets are widely divergent, therefore, it is necessary to consult professionals for issues to be aware of and the possible legal consequences.
Foreign elements of common tools. This article mainly introduces three common private wealth management tools, which are foreign-related testament, overseas jumbo insurance policy and foreign-related family trust.
(1) Foreign-related testament. Testament, as the most basic tool in private wealth management, allows people to dispose of all various properties at their own discretion without signing any sophisticated documents, setting complicated terms or completing tedious examination or registration. If the testator or the beneficiary has foreign identity or the legacy is located in foreign countries, there are foreign elements in such testament.
Though most countries acknowledge the effectiveness of the testament, they have different requirements of the establishment of testament and the criteria of its effectiveness. Therefore, the effectiveness of the testament in different laws shall be the first issue to consider when establishing a foreign-related testament.
(2) overseas jumbo insurance policy. Jumbo insurance policy has always been considered to have some effect on asset preservation, debt avoidance, wealth management, reasonable avoidance of estate tax and estate inheritance, which makes it one of the key tools of wealth inheritance and risk diversification for high-net-worth individuals.
Despite that some domestic insurance institutions have also launched some large insurance products over recent years, overseas jumbo insurance policies have more functional and humane settings, such as policy loan financing, and the amounts covered by overseas jumbo insurance policies are usually higher than domestic ones, which may reach tens of millions of dollars, so that they can satisfy the needs of high-net-worth individuals better.
(3) Establish overseas trust. Foreign wealthy families effectively fulfil the inheritance of family wealth and business by establishing family trust, which attracts the attention of the emerging high-net-value individuals in China. Different from China where family trust only refers to fund trust, in the UK, the US or other countries with developed trust industry, almost all kinds of properties may be put into the trust at the trustor’s will (limited by the real estate registration system, real estate in China may not be put into foreign trust) with more privacy. Thus, high-net-worth individuals prefer to establish trusts in countries or regions with relatively mature trust system.
The foreign elements involved in establishing overseas trust include not only the establishment place but also the asset segregation and the coordination and arrangement of assets in different areas. In the course of establishing trust, the high-net-worth individuals usually incorporate offshore companies, through which he/she holds the equity in listed companies or domestic assets. If the domestic assets are restricted by admission qualification for foreign investors, they will control their domestic assets through VIE.
Foreign elements involved in dispute resolution. “Dispute resolution” herein mainly refers to divorce and divorce-related litigations. Foreign identity and foreign location of real estate have great significance for the determination of the court judirsdiction and applicable laws for the future possible litigations. Most countries adopts jus sanguinis or Jus soli to determine whether a court has the competent jurisdiction over litigations of divorce, marital property disputes, property preservasion and otherwise; for real estates, most countries adopt exclusive jurisdiction. Therefore, when disigning a private wealth management plan, it is necessary to consider the impacts brought by such elements on possible disputes in the future.
Considering foreign elements and their influences are key to the private wealth management. Only then may the law firms provide clients with better legal services and escort the true private wealth management.