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The advantages of taking a multi-generational approach to your wealth
Bank Lombard Odier & Co AG
Article published in Le Temps, 15 December 2023
Succession planning should be handled holistically, with future generations fully included in the process. Here is how our experts approach it.
This is an issue that is becoming more and more important given the world’s ageing population. In the United States, studies predict an intergenerational transfer of assets of more than USD 70 trillion over the next 20 years: that’s a level never seen before in history, and it has been referred to as the "Greatest Wealth Transfer".
Each family has specific wealth issues that will need to be considered. Without forward planning, this will create a situation that will be costly for the next generation, in both personal and financial terms.
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A holistic approach to wealth transfers
Transferring wealth intelligently requires foresight and a global approach to asset structuring. Formally setting out the conditions of this transfer in a will is a fundamental stage in the process, although unfortunately it is often not enough.
Taxation does not apply solely to the tax payable in an investor's lifetime. Other taxes may come into play after their death, or in the event of a transfer to a loved one.
In Switzerland, inheritance tax rates from parents to children are often minimal (between 0% and 7%), but they can reach double figures in France, Belgium or the United Kingdom.
There are two risks that we think are particularly worth mentioning: those associated with the domicile of the heirs in certain countries ("situs heirs") and those affecting certain assets held in certain territories ("situs assets").
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In terms of domiciles, certain countries impose gift or inheritance taxes on what heirs receive, even when the deceased or the assets being transferred are not situated in the same territory. This is what happens under French law. A person domiciled in France for more than six of the previous 10 years and who is the beneficiary of a "foreign" gift or inheritance would be taxed according to French inheritance or gift rules (see table below).
For "situs assets", taxes on certain inherited or gifted assets may arise because of their geographical situation, even if the neither the deceased, donor nor beneficiary are resident in that country. This may affect property assets (such as a second home in France), financial assets (such as shares issued by an American company) or movable property (e.g. a collection of art objects stored in the United Kingdom).
Families who are adequately informed about these economic and tax matters are able to take optimisation measures to protect their wealth before gifts are handed on or death occurs.
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Guiding families' futures
Putting appropriate plans in place requires an understanding of the persons involved in the transfer, the subject of the transfer and its time frame. A personalised action plan is then required, based on three factors:
- The assets: investment decisions and asset allocation
- The investors or participants in the transfer: the action by the investor client (succession planning, planned giving, will and so on)
- The beneficiaries of the transfer: the measures by the beneficiary heirs (geographical mobility etc.)
Every family story is different, so a tailored approach to wealth transfers is needed, together with measures to mitigate the tax burden that match individual circumstances.
Failing to take action on multi-generational wealth can often create substantial financial costs and harm any assets being passed on. Thinking about the cost of this inaction and how much wealth may be eroded is a starting point for considering possible alternatives.
The organisation of your investments should not be guided solely by straightforward financial objectives. Strategic, multi-generational thinking is needed, based on a coordinated global approach that is revisited regularly as your life objectives develop or international tax frameworks change. The objective: to preserve wealth from generation to generation.
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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