The long-time clients–a Boston-area couple in their early sixties–plan to retire soon from their respective Fortune 100 executive positions and spend most of their time overseas at their second home in the south of France. They also want to be closer to their children: a son living in Madrid who is married to a citizen of Spain, and a grown daughter now residing in London.
The new clients–a couple in their later forties–have a successful technology company they started in their native Korea and expanded to the U.S. They reside full-time in Southern California, where the husband is also a professor at a major university. They retain their Korean citizenship and maintain a home in Korea for the husband's frequent business trips and for family visits with their two young sons.
As detailed and exacting the solutions for affluent clients may be, solutions for global affluent clients require even greater analysis of residency, taxation, and risk implications when clients own assets outside of the U.S., intend to retire overseas, or even have children who have settled abroad. With high-net-worth and ultra-high-net-worth global families, it's not unusual to have the parents primarily residing in one country (the U.S., for example) while maintaining citizenship in another (or perhaps maintaining dual-citizenship) with adult children living around the world, some with U.S. citizenship and others becoming naturalized citizens in the country where they married and settled. At the same the time, the family's assets are dispersed among three or four countries.
For such global families, advanced planning teams look for global solutions that often confront conflicting tax laws, jurisdictional issues, and even an analysis of the price of citizenship.
Affluent individuals born in the U.S. have also become more global in their outlook by taking advantage of new offshore investment opportunities such as real estate, to attain the right ratio of domestic to foreign investments, and to mitigate risk. North American high-net-worth investors have historically held the largest portion of their assets in domestic markets, according to the 2007 World Wealth Report from Merrill Lynch and Capgemini. From just 2005 to 2006, these investors increased their global allocation from 22% to 27%, as a sign of confidence in the strength of the euro and as a demonstration of interest in emerging markets and their higher returns.
The many flavors of wealth transfer taxation
Not surprisingly, when wealth can be taxed, every country wants a piece. The location of an asset, the country of domicile for owner, and the jurisdiction of wills, trusts, and other legal documents are important when it comes to planning for the global family.
Estate tax. Some countries besides the U.S. levy an estate tax at the time of an owner's death. In England, for example, the current rate of the inheritance tax is 40% for estates above ?300,000 (about $590,836 at $1.97/British pound). For an English couple living in the U.S. but holding British passports, proving U.S. domicile could be helpful for estate and/or gift-tax purposes, to take advantage of the larger exclusion ($2 million in 2008).
Annual wealth tax. Some countries, such as France, Switzerland, Spain, and Greece, impose an annual wealth tax based on the net value of an individual's assets. Trust income may also need to be included in the calculation of this tax. The client's son who married a French citizen and settled into a comfortable Parisian life could see his global assets taxed every year on the net value above ?770,000 (about $1,139,600 using $1.48/euro). The tax starts at 0.55% and goes up to 1.8%. In a city where an upscale three-bedroom apartment in a good, but not top, area can easily cost more that twice that threshold, the annual wealth tax can be a significant haircut. If the global assets only totaled double the threshold (about $2.3 million), the annual wealth tax would be about $63,000.
Annual inheritance tax. In some countries, such as Germany, Japan, Spain, the beneficiary who receives a gift or bequest–not the deceased's estate–is taxed on its value.
Citizenship, residency, and domicile. Each factor can determine which tax is owed in which country. With the UK inheritance tax, for example, even if a client left London to take up permanent residence in Los Angeles, but made the change within the last three years, Her Majesty's Revenue & Customs Office will consider England the country of domicile.
