Page 13 - Bus365 Issue 10 2021 WEB

WEALTH AND THE

NEXT GENERATION

PROTECTING IT, PASSING IT ON AND THE

IMPORTANCE OF COMMUNICATION

Over the past two years the COVID-19 pandemic has seen so many of us re-evaluate what is
important to us and in our line of work this has been evident through a lot of conversations with
families about their desire to transfer some, or sometimes a large portion, of their wealth either to
the next generation or to a philanthropic pursuit.
n this short piece we wanted to draw attention to themselves ever more in the spotlight from a tax
a number of the recurring issues that we often see morality perspective, we have seen an increasing
Iarising when we engage with families, and assure use of them in their purest form as a means to
you that very often we are not talking about tax. protect assets for the next generation, so often our
structuring conversations seek only to understand
Starting with control, it is a well-established scenario
the tax involved rather than how to reduce it.
that the generation that created their family’s wealth
want to pass it on but want to have a say, or in In addition to seeking to retain control, another
some cases completely dictate, how the recipients common pitfall we see is the failure to communicate
or benefi ciaries utilise what they get. The desire e ectively. So often we see grievances arise
to retain control is a common human trait and in families where gifts are made to meet the
reluctance to giving away something you have perceived needs of the recipient rather than
worked so hard to generate is natural. following discussion of what that child actually
needs or wants. You may, at this point, refer to such
Our fi rst piece of advice is that it is yours, if you don’t benefi ciaries as ungrateful so and sos (!) but we
want to give it away then don’t. Yes, there may be really recommend that you formulate your own
tax consequences depending on your personal appetite for generosity fi rst and then talk to your
circumstances, but what we consistently say to most kids about it. Be clear about what you want to
of the families we speak to is that, fi rst and foremost, do, and why, and understand how that works for
look after yourselves and enjoy your life, be happy. them. As noted above you have no obligation, but
Just make sure you understand any exposure that
by Justine Howard does exist as there aren’t many things less welcome if you are seeking to give somebody something
Associate Director, KPMG in the it is always nice to know they actually want it! We
Crown Dependencies than a surprise tax bill. have seen this go wrong with house purchases
For many, that approach isn’t su cient as either or expensive car purchases, etc, where actually
they wish to mitigate estate taxes or they wish to help with school fees would make a fundamentally
see others benefi t from their generosity a) when the bigger impact on that child’s life, or increasingly
The desire to recipient really needs it and b) when the donor is where they might much rather see your wealth
deployed to help those who are truly needy.
still around to be thanked for doing it.
retain control is a So, if you do want to give something away to your In that vein we have seen a lot of family businesses
common human children directly you probably need to accept and high net worth families seek to increase their
trait and reluctance that it won’t be yours anymore. For a gift to be charitable donations or often consider the creation
of their own charitable vehicle. There is no doubt
e ective for estate tax planning in most jurisdictions
to giving away it has to be a bona fi de gift, as most international that COVID-19 has brought into focus a degree
something you tax codes contain provisions akin to the UK’s gift of refl ection as to who we are, what we have
have worked so with reservation of benefi t rules which enable tax achieved, and what we want our legacies to be as
authorities to choose to ignore the legalities of a gift,
well as a serious amount of perspective. Whether
hard to generate is typically where the donor has retained an interest you are considering transferring wealth to your kids,
natural in it (most common example being a property that a charity of your choice, your local sports team or
school make sure you know what you want to do
the donor continues to use regularly) and doing so
often results in an increased tax take for the public and why. Be aware of the tax considerations, but
purse. don’t let them determine everything you do and
discuss your plans with those you are trying to
Trusts remain an extremely e ective halfway house
benefi t.
where you can protect assets, often reduce tax
exposure, and retain at least direction via a well If you would like to fi nd out more about our family
drafted letter of wishes, if not complete control. o ce services, please contact jhoward@kpmg.
Over the last few years, as o shore trusts fi nd co.im.

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