Last year, RBC Wealth Management released a survey examining the priorities and aspirations of the children and grandchildren of ultra-high-net-worth families.
One of the most important takeaways? These “next gens” are going global. Two-thirds were already living a cross-border lifestyle (pre-COVID-19), running international businesses and philanthropic endeavours, living and working abroad or educating their children in a different country.
They are, RBC declared, “a generation shaped by globalization.”
This lifestyle can be very different from what the current generation, which controls the wealth, “has in mind in terms of how they imagine their heirs living,” says Kash Pashootan, founder and CEO of First Avenue Investment Counsel, a family office with locations in Toronto and Ottawa. “But it’s definitely the way things are moving.”
That growing international exposure means that the already complex affairs of ultra-wealthy families are becoming even more complex, involving international taxation, business ventures, estate planning and succession.
Complicating matters further, says Pashootan, is the way that a cross-border lifestyle often sneaks up on families unawares.
“Generally, families don’t overnight develop exposure to business and lifestyle in multiple jurisdictions,” he says. “It happens gradually – a business expansion, a vacation home down south, a child who decides to study abroad and then develops relationships or gets married in another country.
“You wake up one day and realize a decade has gone by, and the family has become significantly more wealthy, but their situation has also become considerably more complicated.”
That means First Avenue and other family offices are becoming experts at navigating the international infrastructure needed to manage the ever-more-demanding affairs of such families. That often means fostering connections to experts and even family offices in other countries.
Virtually all wealthy Canadians have some kind of U.S. issue.Tom McCullough, Northwood Family Office
“It’s very important not to attempt to be a subject matter expert in all things,” says Douglas Byblow, president of Forthlane Partners, a family office based in Toronto. “Our value-add is knowing very intimately the challenges and goals of a family, and having a very broad understanding of a range of issues that allows us to call in expertise as needed, and coordinate it.”
Tom McCullough, chairman and chief executive officer of Toronto-based Northwood Family Office, likens his role to that of a general contractor. “We’re not deep specialists in every aspect of U.S. tax law, for instance, but we do know how to amass the talent required to solve each family’s very unique needs,” he says.
U.S. is the elephant in the room
Northwood accomplishes that as a member of the Wigmore Association, a coalition of eight family offices around the world that share expertise and resources to serve clients whose affairs are distributed globally.
“For example,” he says, “we had a client trying to set up a trust for a child in Australia, so we used our Australian resource to determine how the trust should be managed.”
Among the most common complications of a cross-border lifestyle are taxes, marital issues, succession, estate planning and international real estate. Coordinating this jumble of jurisdictional specifics could be a full-time job.
The United States, of course, is the elephant in the room for Canadians.
“Virtually all wealthy Canadians have some kind of U.S. issue,” says McCullough. Those include securities and investments, real estate, trusts and business arrangements. The U.S. is also among the most complex jurisdictions in the world in terms of tax compliance, with laws that fluctuate constantly. Changes often arise with each new incoming presidential administration.
The fact is that with wealth comes the need for greater security.Kash Pashootan, First Avenue Investment Counsel
For many families, however, the less-material aspects of managing a cross-border clan are just as important as setting up the right tax structure or asset-management strategy. Think of finding the right school for a child or grandchild during an international relocation, or family counselling to assist with disagreements about properties.
Or even emergency services to handle unexpected crises. Byblow cites one memorable instance in which a member of a family he worked with passed away during a Caribbean vacation. The family wanted to repatriate the body as soon as possible, but the local authorities on the tiny island were already over-burdened with work, and the necessary permissions and certificates were delayed.
“I was able to pick up the phone and speak to someone on the ground, in country, and get that certificate,” says Byblow. “This wasn’t about money, or tax efficiency, it was about something that ultimately mattered much more. So what we do really runs the gamut, from financial planning to coordinating international affairs to those kinds of logistical nuances.”
A need for greater security
That also extends to crisis management.
“We deal with it with almost every single one of our high-net-worth families,” says Pashootan. “The fact is that with wealth comes the need for greater security.”
His firm has in the past arranged private-security personnel, coordinated with on-the-ground-authorities, and even helped families secure kidnap-and-ransom insurance. “It’s very specialized,” he says, “and these are problems that most families don’t ever need to think about.”
In the past year, COVID-19 has put a temporary crimp in everyone’s globetrotting, including the wealthiest among us. But that is expected to change in the latter half of 2021 and beyond.
“On the whole, wealthy families are becoming increasingly mobile,” says Byblow. “Especially younger family members are wishing to experience what the globe has to offer, and the world is smaller than ever, particularly for those blessed to have the resources to lead their lives in the way they desire.”
In the longer term, the globalization of the wealthy is only going to increase, he says. “And that means more choice, more opportunity, but also those issues of complexity and risk [will] multiply.”