Why you need to be ahead of your estate planning


For those of you unaware, the USA ‘s tax office, IRS (Internal Revenue System) introduced a new reporting mechanism in 2015 called FATCA (Foreign Account Tax Compliance Act) and most people, around the globe, would have received a form (from their bank) to confirm whether they are a US citizen and if they are supposed to be paying (US) taxes. Those that did not complete the inquiry may have had their account closed or taxes withheld. The USA were basically fed-up of us having to report ourselves as this was open to abuse (weren’t told about true figures.)

As a result, the IRS collecting billions of extra dollars, most of the rest of the world wanted to impose a similar mechanism. Common Reporting Standard (formerly known as Standard for Automatic Exchange of Financial Account Information) is under way by 54 countries () by 2018, and a further 49 countries () by 2019. Financial institutions required to report under CRS will include banks, custodians, brokers, asset managers, intermediaries, certain collective investment vehicles and certain insurance companies. The information to be reported in respect of reportable accounts will include details of the account holder and information relating to the investment income, account balances and sales proceeds from financial assets associated with the account.

This will eventually create a trail of your financial activity around the world. All countries involved will know or have access to information about you. If you move to another country which is in CRS, they will know about your previous activity.

There is nothing wrong with this, of course if you remain honest and transparent as the days of “high confidentiality” whereby no-one knew what you owned have gone! You can keep your assets private from 3rd parties but no longer from the tax-man!

If you own assets in the 54 countries reporting for 2018 (gathering information 2017) or the 47 countries reporting for 2019 (gathering information 2018) then you need to prepare for an onslaught of forms and reporting. You need to be vigilant as to what you own and how it is already reported.

HSBC’s (globally) site already states “ To help fight against tax evasion and protect the integrity of tax systems, governments around the world are introducing a new information-gathering and reporting requirement for financial institutions. This is known as the Common Reporting Standard (“the CRS”) and we’d like to help you understand what it means for you.

Under the CRS, we are required to determine where you are “tax resident” (this will usually be where you are liable to pay income or corporate taxes). We will base this on information we have already or we may ask you for additional details.

If you are tax resident outside the country where you bank then we may be required to give the national tax authority this information, along with information relating to your accounts. This may then be shared between different countries’ tax authorities.”

Should you have a complex estate such as living in country A, banking in country B and paying taxes in country C, you are headed for a minefield of paperwork! It may be a legitimate set-up but it would be scrutinized by all financial parties who have to report. Your Corporate Services officer/s may be restricted with what they can do to help – setting up 3rd party bank accounts is very difficult these days due to Anti-Money Laundering (AML) rules (this has high compliance management world-wide.)

With the announcement of the Panama Papers a few months ago, it is becoming more and more difficult to keep our assets hidden. Most of these structures were no-doubt set up because of company/asset governance but the ones that abuse the system, basically spoil everything for everyone else. Having a tax-mitigating shelter is very different to having a tax-evasion shelter.

If you have lots of assets all over the world, it will become difficult to manage the process of reporting unless you have a structure that holds them together under one roof. I have clients with houses in over 5 countries (and receive a rental income,) bank accounts in over 6, stocks in 3, and work in none of them. The reporting for this will be never-ending.

By creating a structure such as a Trust (transparent) you are not only keeping assets private, but allowing one report to be made (via the Trustee.) You are not hiding your assets from the Government but simply keeping them under the one roof. This mechanism can save a lot of time, costs and potential misunderstandings – which can in turn, cost your estate. It also ensures that your loved ones will receive your estate as and how you choose when you set up the rules, should something happen to you.