Cross-border investments and digitalisation are redefining estate planning for expats

Estate planning — process of protecting, managing, and distributing a person’s wealth in the context of inheritance and succession — typically, it involves meticulous planning and tax-efficient structuring of assets, maximising the inheritance value and safeguarding the financial interests of beneficiaries/heirs. For expats, in addition to inheritance tax and other routine formalities, estate planning entails cross-border considerations.

For instance, a Dubai resident with assets in the UAE and the country of permanent residency could face added complexities in estate planning. In such a scenario, expats must consider their retirement plans, the comparative analyses of applicable taxes, the preferences of the beneficiaries, and other sociopolitical and economic aspects. If the estate largely comprises bank accounts and intangible assets like equities, then distribution becomes relatively easy compared to a portfolio with immovable assets like real estate.

Fortunately, the growing connectivity in the globalised world is simplifying estate planning. Today, GCC residents, particularly high-net-worth individuals (HNWIs) and family offices, irrespective of nationalities, are diversifying their portfolios by gaining strategic exposure to different financial markets and asset classes. In addition to tax-efficient and seamless transfer of wealth, such cross-border strategies are helping maximise returns and stay in sync with the ever-evolving financial industry.

Increased digitalisation, the emergence of alternative asset classes, and the rising awareness of estate planning across income groups have led financial advisers to believe it is an opportune time to get the conversation going. The rationale is that the best time to invest was 10 years ago; the next best time is now. Anselm Mendes, executive director of sales and technology at The Continental Group — a leading insurance intermediary and financial services solutions provider in GCC — brings more clarity.

The Continental Group is a leading insurance intermediary and financial services solutions provider in the GCC region. Licensed by the Insurance Authority, the Securities and Commodities Authority (SCA) of the UAE, and DFSA (CFS DIFC Limited from The Continental Group is regulated by the DFSA), the group represents reputed multinational and local insurance and financial institutions.

Excerpts from an interview:

What are the short- and long-term considerations of estate planning for expats? When is the ideal age to start estate planning?

There are no set-in-stone rules, including age, for estate planning. However, the rule of thumb is to start at the earliest and use the long time-horizon to maximise returns and minimise risks. That rule is helpful for expats in the GCC because many tend to emigrate with short-term goals but stay longer than intended. As a result, even the financial outlook changes, requiring long-term estate planning.

Fortunately, GCC economies boast economic policies that favour long-term estate planning. The nominal, if at all, personal income tax is the major incentive to stay invested in the region. Additionally, the inheritance laws are straightforward, and the path to establishing, managing, and bequeathing trusts is smooth, especially in financial free zones. As a result, many HNWIs and family offices are making a beeline to the region.

Conversely, expats hoping to return must emphasise estate planning in their home countries while factoring in the tax implications of a cross-border portfolio. It could involve liquidating tangible assets and retaining intangible ones abroad while insuring against the probable costs of future transfers. A long-term approach to estate planning allows expats to course-correct the strategy as and when their residential circumstances change.

What is the role of trusts in estate planning. Why should expats be wary of inheritance tax?

If, for example, you have a property worth more than £325,000 in the UK — the surplus valuation is liable to 40 per cent inheritance tax. So, for an estate valued at £500,000, you’ll incur £70,000 (40 per cent of £175,000) in inheritance tax. Such high taxes are commonplace across the developed world, with many developing countries planning to follow suit. So, expats hailing from such countries must be wary of inheritance tax and establish by-the-book mechanisms to reduce liability.

As blockchain is an immutable ledger; it can facilitate smart and self-executing contracts where data related to identity, ownership and transfer can be registered, leaving no room for errors and discrepancies in the future. So, blockchain can essentially replace the probate process and significantly reduce legal issues. With governments, especially in GCC, becoming more receptive to blockchain, it could be institutionalised in the financial industry soon. And as blockchain is a decentralised medium with no geographical or administrative barriers, its utility for expats and cross-border estate planning is colossal.