Simplifying Your Wealth Structure

14 March 2019 Stonehage Fleming
Michael McLeod, Director at Stonehage Fleming

Michael McLeod, Director at Stonehage Fleming

Rising scrutiny from regulators calls for greater transparency

In a global regulatory environment that is increasing in intensity and demand, the days of overly complex wealth structures are numbered, according to Stonehage Fleming in South Africa. The international multi-family office urges wealthy South African residents faced with growing financial scrutiny to modernise their existing wealth structures to remove unnecessary complexity, while still meeting individual or family’s needs.

South Africa has recently complied with three international standards, namely Common Reporting Standards (CRS), the Foreign Account Tax Compliance Act (FATCA) and the Automatic Exchange of Information (AEOI). Certain financial information collected by financial institutions around the world is required, by law, to be reported to the tax authorities. However, as they are in varying stages of implementation, there remains substantial confusion on how best to satisfy these measures in a South African context.

Director within the Stonehage Fleming South African Family Office division, Michael McLeod, says that knowledge of the consequences of these standards is generally low in South Africa.

“The main attractions of multiple structures are estate and tax planning, succession planning and privacy. In many cases, privacy can still exist without the need for cumbersome structures, while retaining data protection and data security with regards to private wealth,” says McLeod.

“Historically, the motivation behind complex wealth structures for high and ultra-high net worth families was linked to secrecy and tax mitigation. The regulatory environment is becoming increasingly more stringent, which means transparency is non-negotiable and secrecy is not an option.”

McLeod also cautions that many wealthy families’ existing structures no longer serve their original purposes and should be reviewed by a trusted financial partner to ensure that their needs are being met to safeguard family wealth for current and future generations, and the management of family assets.

“Simplifying is primarily about consolidation; a process of combining multiple structures into a single, more coherent whole; an entity that will be the primary vehicle for your family moving forward. In terms of modernisation, a consolidated structure will also prove more cost effective due to the rising administrative and professional costs associated with such structures. If your wealth structure is user-friendly for you, it means it will be user-friendly for the regulator and this knock-on effect is an important consideration.”

He concluded:

“Regardless of design, wealth structures remain vital for successful wealth preservation and the transition of wealth through multiple generations. They serve as one of the building blocks of succession planning, which more critically depends on sound family governance and communal family values and objectives.”

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