As a financial advisor, my job is to listen to my clients, learn about the complexity of their financial situation and understand their family dynamics. This process is particularly important for international clients when considering the factors that impact their wealth management and financial planning.
The undertakings of servicing offshore clients can be complex and delicate. International families, as well as their tax and estate attorneys, need to take time to ask the right questions when interviewing advisors to ensure they will be working with the ideal partner to support them and their beneficiaries. Having an advisor with experience and knowledge of working with international clients matters greatly, and it is through a very thoughtful and holistic outcome-based approach, specifically tailored for these families, that can ultimately cultivate multigenerational relationships that are long-lasting and rewarding for all.
When speaking with a prospective client recently, I learned that their family had moved to Massachusetts for a few years and obtained social security cards during their stay. After their children grew up, they decided to move back to their home country, leaving their U.S. investment accounts unchanged. While no longer U.S. residents, they were unaware of the need to update their nonresident status and were still working with domestic advisors, who proposed investment portfolios that were tailored to U.S. clients. There was no discussion about tax and estate planning with such an investment portfolio. During our conversation, the client learned with great relief about the difference between onshore and offshore platforms and their subsequent tax implications.
I have come across many situations like this throughout my nearly 20 years of servicing high net worth families who are global citizens. While my practice focuses on the same modern investment theory to guide our investment philosophy and discipline, the strategy implementation and legacy planning for domestic clients versus offshore clients can be vastly different. The knowledge of cross border regulations can be just as important as investing itself. Investors are regulated by the rules of the country of residence (COR), not by their citizenships or their passports. The treaty established between the U.S. and the COR dictates the tax withholding policy.
Situations Global Citizens Need to Consider:
In the previously mentioned case, if the client opened the accounts under the correct offshore platform with a tax exempt status, no capital gains would be reported and only dividends would be withheld based on the treaty between the U.S. and the client’s home country.
From an estate planning perspective, if the parents were to pass away, leaving their assets invested in U.S. securities, the family could only be exempt for $60,000, instead of the current $23.16 million exemption enjoyed by U.S. residents. A significant portion of their assets could therefore be exposed to estate taxes.
What could be more troubling was that the plan to be implemented based on their U.S. investments platform would be in direct conflict with their true legal status.
Unwinding trades or applying for a legal status change down the road could also prove to be cumbersome and costly.
The regulations and investments rules vary from country to country, and some are more lenient, while others are strict. Advisors must know whether their firm is licensed in the country where their clients reside and also the country where the clients are traveling to should they wish to establish a line of communication. Fortunately, for a financial service firm such as UBS, whose global presence has been expanded and strengthened over the past 150 years, the compliance and intellectual resources are abundant. Designated international advisors are well-briefed with the ever-changing rules and laws of many countries they serve, the key to a successful planning for international ultra-high net worth families.
Jessica Guo is a Financial Advisor with UBS Financial Services Inc. at 55 William Street, Wellesley, MA 02481. UBS Financial Services Inc. Financial Advisor(s) engage Worth to feature this article. As a firm providing wealth management services to clients, UBS Financial Services Inc. offers investment advisory services in its capacity as an SEC-registered investment adviser and brokerage services in its capacity as an SEC-registered broker-dealer. Investment advisory services and brokerage services are separate and distinct, differ in material ways and are governed by different laws and separate arrangements. It is important that clients understand the ways in which we conduct business, that they carefully read the agreements and disclosures that we provide to them about the products or services we offer. For more information, please review the PDF document at ubs.com/relationshipsummary. The strategies and/or investments referenced may not be suitable for all investors. UBS Financial Services Inc., its affiliates and its employees are not in the business of providing tax or legal advice. Clients should seek advice based on their particular circumstances from an independent tax advisor. The views expressed herein are those of the author and may not necessarily reflect the views of UBS Financial Services Inc.
UBS Financial Services Inc. is a subsidiary of UBS AG. Member FINRA/SIPC.
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