HNWs face a range of new challenges as they seek to protect their assets, which is why they need to adopt new asset protection strategies. Kingsley Napley partners explain how HNWs can protect their wealth.
It features greed, glamour, larger than life characters, shocking behaviour, and cliffhanger endings. But what is the hit TV show Succession really about? The answer is asset protection. Will Logan Roy protect the empire he’s built up over decades from hostile takeover bids and, most importantly, from his foolish, wilful and rebellious children? When it comes to asset protection, many areas of the law have not changed radically over the past few decades – although a Supreme Court decision in 2010 has prompted a fundamental rethink of prenuptial and postnuptial agreements.
Generally, the overall desire of clients to protect their wealth from threats and to ensure that they bequeath it to the next generation in a way that works for them and their children has not changed much either. However, the social and economic context has evolved considerably over recent years, as have some of the risks. As a result, wealthy individuals are asking more of their asset protection strategies than they were just a decade ago.
At Kingsley Napley we’re seeing, for example, increased instances of multiple marriages, among both wealthy individuals and their children and heirs. It’s often thought that trusts can provide complete protection here, but this isn’t always the case any more. The Supreme Court decision in Radmacher v Granatino in 2010 was a game-changer for asset protection.
This ruling has enabled parties to contract out of the powers of the English courts in order to ringfence pre-acquired or inherited assets from claims on divorce, and to secure significant departures from equality.
Once regarded as something of an American import, nuptial agreements now carry significant weight and have become an essential part of wealth protection for HNWs in this jurisdiction over the past decade.
The truth is that although trusts certainly continue to have their uses, wealthy individuals need to think about prenuptial and postnuptial agreements, both for themselves and for their children. We’re also talking to more families about adopting corporate structures such as family investment companies or family offices in order to develop better protection and flexibility for their assets.
Alongside this, a very important trend that we’re seeing is that people are making their money considerably earlier in their careers, perhaps because they work in tech or they’ve sold their business. The risk is that they don’t start to think about asset protection until it’s too late. As a result, they end up paying more tax than they should, and they can’t develop a proper strategy for preserving and managing their assets and ensuring that those assets benefit their children.
Asset protection is not just about laws and regulations – education and developing more positive attitudes towards wealth are increasingly important. As a result, HNWs want to educate their children about their inheritance so that can use it wisely, rather than spending it foolishly. There’s another important new development that HNWs need to consider these days. Social perceptions of wealth, especially when inherited, are increasingly important.
The Pandora Papers, hostility towards oligarchs and the controversy over the tax status of chancellor Rishi Sunak’s wife vividly demonstrate the point. Similarly, if you’re transferring large sums to your children, you probably don’t want to see them boasting about their affluent lifestyle on their Instagram accounts. We’re increasingly advising clients on how wealth preservation can be perceived as well as how it can be achieved.
HNWs are asking us to advise them on issues such as social investing and backing projects that are connected with the sustainability and ESG agenda. Today, preserving the good name of a family is almost as important as preserving its wealth. As part of this trend, wealthy individuals are looking for a comprehensive package from asset protection advisors – a package that covers a number of different areas, including reputation management, immigration, real estate and employment.
Successful asset protection these days is likely to include the need for corporate and commercial expertise as well. As the asset protection landscape undergoes so many changes with new risks emerging all the time, it’s more important than ever that HNWs act now.
The aim is to create a framework that allows for control with flexibility so that wealthy individuals are not just preserving their assets but are building on them to create a better future. The key to achieving this, as our clients are finding, is to take a holistic, multifaceted approach to asset protection and wealth management with an experienced, full-service legal advisor.
This article was published in Spear's on 1 August 2022.