Protect your wealth in times of crisis: best practices

Even though the current situation of Covid-19 epidemic is both unusual and unsettling, this ordeal is also cause for reflection.

It is an opportunity to review your personal family and wealth situations – or those of your clients – and to consider what structural changes might be made to more effectively achieve the targeted objectives and limit potential risks.

As events unfold, protection, flexibility and anticipation deserve a prominent place in your thoughts.

Below we have outlined several steps you may wish to take in pursuit of these aims:

  • Corporate structure: anticipate unusual circumstances before they arise.

For example, it may prove useful to create a plan in case some or all members of the management team suddenly become unavailable or unreachable, to ensure that meetings can be held virtually, that decisions can be taken in writing, that the company’s registered office can be easily transferred abroad, that a member of the management body can be temporarily replaced, etc.

Please note that a Grand Ducal Regulation of 20 March 2020 has now, made it possible, for example, to hold shareholder meetings using remote voting, by proxy or by videoconference. Moreover, management boards (and other corporate bodies) may convene without holding a physical meeting.

In this context, the OECD issued recommendations in which it clearly states that the current travel and quarantine restrictions which have led to virtual board meetings and other corporate actions being undertaken remotely should not impact a company’s tax residency, despite common international tax rules.

Furthermore, given that key actors could potentially become unable to perform their duties, it may be wise to arrange for back-up proxies for bank accounts and structures to be entrusted to a reliable friend, family member or fellow professional.

  • Wealth restructuring

Now might be the right time to transfer or reorganise private assets and related portfolio ownership structures. Given the fluctuation in the value of many assets at this time, these types of transaction – which under normal circumstances could have a significant tax impact – might ultimately be tax-neutral.

  • Draft a will

Drafting a will is important for many reasons, not least because it enables the testator to: 

- give final instructions or wishes
- give an opinion on the provision for minor children
- appoint a testamentary executor in case of a complex estate
- derogate from certain non-mandatory legal rules
- specify the manner in which certain assets of the estate should be distributed among the heirs
- choose the national law that will govern the succession, etc.

Please note that in Luxembourg, when a person dies without leaving a valid will, the law determines the order in which heirs will inherit. Each category of heir precludes the heirs in lower-ranked categories from receiving a share of the estate. Additionally, please note that unmarried partners are not included in any heir category. This means that in the absence of a will, a partner with whom you are not married could be totally excluded from inheriting.

Remember that a will can be amended at any time, and can be drafted without the involvement of a notary, provided that certain rules are followed.

  • Assess your matrimonial property regime

Do you know which regime applies to your marriage, or the one of your clients, and what its impact and consequences would be? Is it the right one for your current needs and situation? Would the surviving spouse be sufficiently protected?

  • Arrange for a medical proxy

It may be wise to arrange for a medical proxy to be given to a trusted friend, family member or fellow professional in case of your own incapacity. This will ensure that any medical treatment will be administrated according to your wishes, and might also prevent conflict if different members of your family disagree about a particular treatment. A power of attorney of this type serves to appoint a person of confidence who will be able to make medical decisions should you be unable to express consent for any length of time.

  • Tax aspects

Given the dynamic environment as many countries worldwide compete to attract capital and private wealth, it is important to monitor tax regulations affecting personal income taxes, taxation of donations and taxation of inheritance – but also corporate taxes. Whenever appropriate, the related tax burdens should be reassessed to account for corporate restructuring and the relocation of families and businesses. Impairments of business and private assets due to the current financial market situation may have a favourable impact on the tax cost of restructuring transactions, especially with respect to capital gains taxation and taxes levied on the fair market value of assets and properties.

Lockdowns and closed borders mean that individuals may be forced to stay in a particular country for more than six months. Strictly speaking, this could trigger the tax liability of a resident in that country. However, according to the recommendations released by the OECD, these temporary circumstances should not affect the residency status of individuals. Nevertheless, we recommend close monitoring of these questions for all relevant countries.

Arendt’s multi-disciplinary Private Clients’ team is now advising a number of families on the most effective ways to preserve their wealth, both in the current circumstances and for the next generation.

For more information, please contact us.

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