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Trust & wealth planning
February 4, 2021
4 mins

COVID-19 heightens the need for comprehensive wealth and succession planning

February 4, 2021
4 mins
Elena M. Mortemore
Head of Trust and Wealth Planning - Americas; Global Client Service - Latin America
Father with his son enjoying lake view
SUMMARY

The nature of the pandemic and resulting uncertainty are naturally prompting thoughts about wealth and succession planning. As the world grasps a seismic socioeconomic transformation, now would be an opportune time to reflect on the impact this will have on your wealth plans and vision for the future.


The COVID-19 pandemic has brought home an element of uncertainty in our lives whilst triggering socioeconomic transformation around the world on a previously unseen scale. It naturally raises thoughts about health, wealth planning and succession for individuals and families that ought to be heeded in a changed world.

The new reality of restricted mobility, however temporary given the emergence COVID-19 vaccines, should provide impetus to pause, reflect, review, and put plans and structures in place. While life is uncertain, wealth planning doesn’t need to be. It is important to plan now, or make adjustments to existing plans if needed, rather than wait until a significant life event happens.

If a clear wealth and succession plan does not exist, there is no better time to implement one that balances emotions and fiscal optimization to ensure an effective and meaningful wealth transfer to the next generation.

Liquidity may be seen as a basic strategy to safeguard assets, but hoarding cash – which often occurs during crises for many – as a vehicle to safeguard the future of the family is a low bar option as we recently noted in Citi Private Bank’s Outlook 2021. A period of structurally low interest rates is upon us, and when rates are typically held below normal levels for extended periods of time, the value of cash and many fixed income investments is diminished.

One can predict with certainty that wealth threatening events will happen during one’s lifetime but not what events and when. How can one prepare for events we know will happen but not when and how?

The key to successful long term investing is having a comprehensive plan and sticking to it rather than reacting to each wealth threat as it comes along. Prior planning is a far better option that takes emotion out of the decision making during turbulent times. We can decide today what percentage of our current assets can be set aside as liquidity for financial shocks, wealth generation for retirement, and what can already now be set aside for our legacy. Legacy assets can be placed in a wealth structuring vehicle like a discretionary trust with professional asset management, thus taking away the emotional stress of decision making during turbulent times. A professional asset manager will have the discipline to stay invested.     

New wealth taxes and one-off levies to address the economic fallout of the pandemic are either about to be, or have already been, introduced in multiple jurisdictions. Several countries also have elections on the horizon at federal and local levels that may result in political extremes. Fiscal rules in your tax residency jurisdiction could also change at short notice.

Therefore, anxieties about higher wealth taxes need to be addressed, and expert counsel sought to meet the burden of changed reporting obligations. Particularly so if your wealth is currently in cash or short-term instruments in your name or standalone holding companies. A balancing act requiring a termination of local structures and decanting into offshore trusts to mitigate country risk, and to maintain privacy of your wealth, could be the order of the day.

Clear plans, should the unforeseen happen, including naming a successor to carry over the mantle must also be in place. Terms regarding incapacity may need to be changed, added, or updated. Additionally, insurance related structuring is becoming ever more important.

Aside from protecting individuals and businesses from risks, insurance has progressively taken on a wealth management aspect. It can be often prove crucial in successful wealth transfer and can serve as an adaptable tool for protecting business assets, family, partners and key employees from an unexpected death or critical illness.

Insurance could also help diversify your pool of assets, as it is a non-correlated asset that is complementary to your global asset allocation. It can also provide liquidity for the next generation; mitigate legal challenges from creditors; and third party claims as well as enable you to take advantage of the low interest rate environment to inexpensively finance premium payments.

Of course, putting structures in place must be accompanied by an understanding of the aspirations of, and instilling an ethic in, the next generation by family leaders as we have emphasized in the past. The resultant wealth and succession plans could reflect family values and aspirations more than ever, incorporating business needs, philanthropic, or core investment activities with potentially better yields for the future.

There is no time like the present to put a wealth plan in place, and we are here to support you.

To discuss wealth planning, succession strategies and investment opportunities in the current climate, please contact us.

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The views expressed herein are for informational purposes only and are those of the author. They do not necessarily reflect the views of Citigroup Inc. All opinions are subject to change without notice.
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