Like other investors, family stewards managing multigenerational financial legacies know the importance of diversification. But for those overseeing significant wealth, it may be important to look beyond the opportunities available domestically. In order to properly hedge against various risks and also capture expected increases in asset value, geographical diversification may be an under-utilized strategy that deserves new attention.
While it is true that some 60% of global market capitalization is represented by US companies, that other 40% is still important to consider. Especially when one considers the value added to the world economy by companies like Nestlé (Switzerland), Siemens (Germany), Airbus (Netherlands), and Unilever (United Kingdom), it starts to become clear that there can be wisdom in expanding the borders of financial thinking beyond the borders of the United States.
But the reasons for thinking internationally go beyond simple investment opportunities. Tax structures, estate planning efficiencies, and legal advantages may also be obtained by creating an international component for a multigenerational financial legacy.
Favorable Tax Treatments Internationally
Many affluent individuals and families are taking advantage of the more favorable tax treatment afforded to investments in locales such as the Caribbean, the United Arab Emirates, and Luxembourg. The availability of greatly reduced or zero global income, inheritance, or capital gains taxes in such countries can allow affluent American families to grow and transfer wealth more efficiently.
Offshore Legal Structures for Estate Planning
For many families, the ultimate goal is to ensure smooth, tax-efficient wealth transfer. By leveraging jurisdictions with zero inheritance tax, American families can maximize what heirs receive. When paired with a second citizenship or residency, these structures also provide children with access to global education, healthcare, and mobility, turning financial diversification into a holistic family strategy.
Asset Protection and Foreign Countries
Legal structures such as trusts, foundations, and international corporations provide additional layers of protection. Families concerned about litigation, creditor claims, or political risk at home can safeguard wealth abroad. Even though trust income remains taxable to US residents, certain offshore structures may act as strong shields for legacy assets, particularly when tied to long-term estate planning.
Regulatory Diversification in Other Nations
For families concerned about the regulatory environment in the US, expanding to other sovereign jurisdictions can provide a hedge against uncertainty. Such strategies may allow affluent families to reduce their reliance on the rules and regulations of a single government. Such an expanded use of sovereignty may help provide greater freedom to make choices about education, healthcare, lifestyle, and legacy without being constrained solely by US systems or policy changes.
Weighing the Risks of International Diversification
Certainly, incorporating an offshore element in financial and estate planning should not be undertaken without a thorough understanding of the potential downsides. Geopolitical, currency, and policy risks and differences must be reviewed and understood. It will be especially important for those contemplating such strategies to have competent legal and tax counsel that is well-versed and experienced in the applicable laws and requirements of the host nation. Further, macroeconomic factors such as inflation, employment, GDP, and others should be closely monitored, since downturns in a nation’s economic prospects are likely to have an effect on the value of investments denominated in that nation’s currency. Changes in tax law are also of particular importance, since US citizens are typically taxed on income earned anywhere in the world, not just that generated domestically.
Building a Team for International Wealth Preservation
Internationally valid trusts and wills, proper understanding and use of tax credits and treaties, and compliance with international investing law and reporting are all vital for those seeking to diversify their wealth-building and wealth-maintenance strategies across borders. At Optima Asset Management, we have access to the broadly based talent necessary for affluent families to build and maintain an international approach to multigenerational wealth. To get more details on how we can work with you to keep your family’s multigenerational vision alive, both now and into the future, please visit our website.
