Special issue for expatriates
The cross-border, wealth-transfer puzzle
By Andrew Tice, Dubai
As the globalisation of trade brings the world together economically, family members are scattering around the globe to work, study, or retire. And those who stay in their home country increasingly have assets or business interests abroad. With tax and succession laws still defined by national boundaries, it takes special care to plan for wealth preservation and asset transfers.
WITH THE MOVE to a more global economy well under way and international corporate mergers becoming commonplace, the demand for expatriate work assignments is rising.
"People are moving around the world for their jobs much more, and they're increasingly forming relationships across borders and outside of their local traditions. That's a huge change," says David Way, partner in the Tax and Financial Planning group of the London law firm of Boodle Hatfield.
Moreover, transfers are not necessarily a one-time event. "We're
seeing an increasing number of career
expatriates, the 'global mobiles' who move from assignment to assignment without returning to their home country," says Merrilee Bratt, a consultant in the Global Mobility Group for management consultants Hewitt Associates LLC.
Whether a move out of country is temporary or becomes permanent, exposure to another world region often has far-reaching implications. You might consider buying foreign property, or contemplate retirement abroad. If your children study abroad, you might decide to settle permanently in a new country.
Of course, globalisation also affects those who continue to live and work in their home country. An increasing number of individuals have assets or business interests abroad.
Individuals with family members or business assets in different countries need to take special care to ensure that their wealth is protected, and that they will be able to transfer assets to their chosen beneficiaries in a timely and tax-efficient manner.
If you own assets abroad, or have family members or other beneficiaries living abroad, the laws that apply to any transfer of assets may differ from the domestic laws you're familiar with. "The laws on the transfer of assets are usually related to public policy and tend to be very particular to the jurisdiction," says Way.
For example, the non-resident estate taxes imposed by the U.S. can be severe if your assets exceed a certain dollar value. In France, a number of taxes, such as wealth tax and inheritance tax, could apply to non-resident property purchases.
Different rules apply
Certain jurisdictions also have laws that specify how your assets should be transferred based on so-called "forced heirship" provisions.
In France, for example, succession laws bestow considerable rights on the children in a family and can override the terms of your Will if there is any conflict between the two. A named beneficiary, such as your spouse, may not receive the share of property you've bequeathed to him or her.
If your children or other beneficiaries live abroad, depending on their country of residence, tax and ownership issues could arise.
In any of these situations, it's vital to have an estate plan that takes into account all the jurisdictions involved.
Begin with your Will
The starting point is your Will. Have your Will reviewed by an expert in each jurisdiction in which you own assets or have beneficiaries.
In some cases, you will have to make changes to ensure that your assets are transferred efficiently, and in the manner you intend. For example, it could be beneficial to have a resident of the foreign country act as executor for the foreign assets in question.
If your Will is not recognised in another jurisdiction, you might even need a second Will to deal specifically with the foreign assets or beneficiaries for that particular jurisdiction.
In some cases, an alternate ownership structure can help you achieve your estate-planning objectives by transferring ownership during your lifetime. The following structures can be particularly useful where more than one jurisdiction is involved:
Joint ownership. In many instances, jointly owned assets pass directly and immediately to the survivor(s) when a joint owner dies.
International trust. If you have significant net worth - perhaps $5 million or more - there may be advantages in transferring your assets to a trustee residing abroad. The trustee becomes the legal owner of the property, with the benefits of the property enjoyed by your chosen beneficiaries.
These trusts may offer several potential benefits, including greater privacy and, most important, easier distribution of assets. There is also the potential for better tax planning.
By transferring assets to an international trust, undistributed income can accumulate within the trust. At the end of the trust's fiscal year, the undistributed income becomes capital, which may be received tax-free, depending on the jurisdiction.
Holding company. Where estate taxes apply to property upon death (as occurs with U.S. property), a holding company can be an attractive option, either on its own or in conjunction with an international trust. The company can be established in your home country or an offshore location. Because the corporation is the legal owner of the property, and continues to exist after your death, foreign estate taxes should not apply.
Plan in advance
Transfer issues can become complex where multiple jurisdictions are involved. You may need to take the steps well in advance to ensure that your interests, and those of your family and beneficiaries, are protected.
"You need to be very alert to the issues and not assume anything," emphasises Way. "The very worst time to work out cross-border issues is when someone has died. Getting good, ongoing professional advice is your best protection."
I've been offered a lengthy work assignment abroad. Should I sell my home or rent it out?
With each option, there are costs as well as other factors to consider. Be sure to seek professional advice.
If you rent out your home, arrange for property management to handle everything from finding a tenant to ongoing maintenance.
Holding property in your home country could affect your residency status for tax purposes. Or the authorities may view your move abroad as a "deemed disposition" of your residence. This may mean a tax charge, even if there is no actual sale.
Rents are usually taxable in the country in which the property is situated, but may also incur tax in the country in which you are living. Structure any renting arrangement to minimise double taxation.
If you sell, you'll incur transaction costs - on the sale, and on the purchase of another home.
The longer the assignment, the more attractive selling becomes. It may even be a necessity if you are buying a home in your new country.
If you do decide to sell, consider the tax implications. For example, there may be tax relief on the sale of your main residence, which may be reduced after a certain period of absence. Other factors include the strength of the housing market, and the likelihood of finding a suitable home to purchase when you return.
If you sell your home, you may want to invest the proceeds for a future home purchase - securely, with adequate protection against capital market declines and currency fluctuations.
Michael Evans is a Partner with the law firm of Burges Salmon in Bristol, U.K. He can be reached at michael.evans@burges-salmon.com
The return of value investing
by Ray Mawhinney, Toronto
The decline of technology stocks in recent months has left equity market investors wondering where to put their stock market cash. Value investing offers possibilities.
WHEN THE TECHNOLOGY bubble burst, the bang was heard around the world, altering the face of equity investing. Investors who had come to expect big profits on tech stocks - and who regarded every price dip as a buying opportunity - were hit with a harsh dose of reality.
The decline of these stocks proved yet again that, in the equity market, nothing goes up forever. Overexposed investors were left in a state of "portfolio shock" as the value of their holdings fell.
In 1999, the NASDAQ Composite Index gained 85.59%, then slid to a 39.29% loss in 2000. Canada's bellwether Toronto Stock Exchange 300 Composite Index - which has a heavy weighting in a handful of major technology companies - also fell from its 2000 peak.
The tried and true
With tech stocks in the doldrums, where could investors turn? Many rediscovered the attractively priced old stalwarts of the marketplace. Instead of chasing flashy new economy issues, they refocused on less glamourous companies that represent value. It's a strategy popularly known as "value investing." And it should have a place in your portfolio.
Put simply, value investing is the practice of buying stocks whose prices are low relative to the market, in the belief that their worth will eventually be recognised. Value investors evaluate a company's current earnings, price-to-book ratio, and dividends to determine the stock's intrinsic value. If its cost is lower than its value, the stock is a purchase candidate.
This contrasts with the growth investing approach that fueled the technology boom. Growth investors concentrate on companies whose earnings are rising, or are expected to rise. These stocks suffer when earnings growth deteriorates.
If you're a mutual fund investor, you may already be on the value investing bandwagon, since many fund managers employ a value investing style. Given the difficulty of finding these stocks, mutual funds are often the best way for an individual investor to locate value investments.
If you invest directly in equities, value should still play a part in your investment portfolio. But there are a few things you should keep in mind before you snap up every low-priced stock you find.
Investing in stocks just because they are cheap won't guarantee success. Some share values are low because they deserve to be. A company may have problems, or face an uncertain future.
The economy matters
Value investing requires a beneficial economic climate in order to pay off. It's particularly important to bear this in mind at a time when North American and global economies are showing signs of slowing.
Economic easing isn't necessarily a bad thing for value, although it's important that the economy should not go into a tailspin. A moderate slowdown in the rate of economic growth is often positive for value stocks.
If the Federal Reserve is able to engineer a "soft landing" for the powerful U.S. economy, the outlook for these investments should remain positive. Already many stocks in sectors such as utilities are rising, as investors react to economic uncertainty by focusing on "defensive" issues.
The key for investors is balance. Value and growth investments are both viable investment
styles that are effective through most stages of the economic
cycle, and both should be represented in your portfolio.
Although investors are currently more wary of growth investments, it is doubtful that the pendulum will swing all the way toward value.
Built-in discipline for financial goals
WE ALL HAVE a variety of financial goals - whether it's saving for retirement, buying a vacation property, funding an education for our children, or just building up wealth over time.
At the same time, everyday demands often compete with these goals. When work or important life issues arise, your personal financial affairs can slide down your priority list.
The solution is to make your personal finances as much of a priority as the everyday demands. Discipline is the key. One of the best ways is to make regular, pre-authorised contributions to an investment program.
Pay yourself first
Making regular payments into an investment plan gives your
financial goals the priority they deserve.
By making automatic, regular investments to a fund (or range of funds) that is appropriate to your particular goals, your time horizon, and your tolerance for investment risk, you help ensure that you continue to build the wealth you need to achieve your goals.
In addition to making long-term savings a priority, investing a regular amount at consistent intervals helps smooth out market fluctuations.
Over time, it can even help average down the price you pay for shares or units. When prices decline, your regular investment buys more shares or units; it buys fewer when prices increase. In a rising market, you may pay a lower average price for your investments than if you purchased them in a lump sum.
Currency hedging
The same principle also helps hedge against currency fluctuations. This is particularly important if you plan to retire or buy property in a country that uses a different currency than you're saving in.
By allocating a fixed amount at regular intervals in investments denominated in the currency you'll need in the future, fluctuations in the currency exchange rate may be averaged out.
And you won't worry about having your savings eroded by converting a large lump sum at an unfavourable exchange rate.
If you would like more information on regular investment plans, please talk to your relationship manager.
Online services you can bank on
Managing your finances wherever and whenever you want has never been easier, thanks to our online banking services.
With our online banking service and 24-hour call centre, you can:
- check the current value of your holdings;
- transfer funds between accounts;
- review your transaction history;
- pay bills; and
- stay in touch with your relationship manager.
You can also access your money by a VISA™ Gold Debit Card or cheque.
Our online banking service also helps you keep your finances in order with its Memorised Options feature. This lets you input into the program regular payments so that they're made automatically on the correct date.
To find out how you can access the convenience and flexibility of our online banking service, view the online demonstration on our Website.
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