Page 13 - Bus365 Issue 10 2021 WEB
P. 13

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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