It is essential to understand and comprehend a client's intentions and purposes for seeking wealth planning advice. Clients will normally have an idea of the risks they want to minimise or avoid through taking our advice, and the objectives they want to achieve. However, each client's situation must be dealt with on a case-by-case customised basis by reviewing all the risks and factors involved. Pre-designed wealth planning solutions will no longer work in this era.
Trusts are amongst the most used wealth planning tools. There is a common misconception that trusts are only utilised to help achieve tax avoidance, but there are many more reasons aside from tax advantages for setting up a trust. This could be to do with asset protection, multi-generation succession planning, avoidance of forced heirship, incapacitated beneficiaries and many more. Often, clients assume that trusts are only available to high-net-worth individuals, as they are too expensive to establish and maintain. However, these misconceptions need to change.
There might be some scepticism in the use of lifetime trusts by clients who derive from countries whose legal system is not inspired by common law principles. However, if the benefits of using trusts are carefully explained, even the most reluctant client will be willing to set them up when appropriate, due to the great flexibility they provide.
As each individual client has specific, unique needs, the choice of trust type must revolve around these needs. In Asia, bespoke trusts are used for multi-generational succession planning purposes with the aim of ensuring that younger generations benefit from financial security, whilst taking into account the increasing geographical and family complexities and the long-term support required by the older generation. In other areas of the world, such as in Europe, offshore irrevocable discretionary settlements are still used to achieve tax efficiencies or asset protection.
There has been increased scrutiny over tax planning vehicles around the world and many local trust companies are finding it too burdensome to comply with the regulatory, legal and tax requirements of clients from certain jurisdictions. High-quality advice, specialism and a global presence (as well as a wisely thought- out fee structure) are playing a key role in deciding who the front-runners in the market are.
The complexities of the ever-changing global regulatory, legal and tax frameworks have caused two factors: clients are now more aware of the need to have well-organised and compliant structures, which must be reviewed on an ongoing basis, and the costs connected with running them. Nevertheless, advisors and service providers have taken this opportunity to provide ‘mentoring’ to their clients and, to secure their loyalty, have sometimes shifted towards fixed fee arrangements. Overall, in the longer term, traditional fee structure based on time spent tends to fade away and this will ultimately benefit families and individuals seeking to establish trusted relationships with their wealth planning advisors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.