Q: What’s your overall assessment of the fiduciary and family office market in the Latin American region?
Betty: There’s always been a need for sophisticated support among Latin American families. They often wish to retain strong ties to their home countries due to cultural and familial relationships and other connections like operating businesses, real estate, and other assets — but they also have an increasingly international presence. This dichotomy has many implications for advisors to those families.
For instance, Latin American families will sometimes have two family office structures — a domestic one, acutely focused on the local home market with full-time staff in place, and an international one, usually located in the US (typically in Miami, New York, or California) with an array of outsourced service providers. The focus and activities of the international office are on investments and interests outside of the family’s home country.
Daniel: That means that advisors to Latin American families must demonstrate clear international capabilities, and diverse expertise and knowledge. There are well-trodden, established routes between certain Latin American countries and the US, but it’s not “one size fits all. "Structures are evolving and becoming more bespoke and sophisticated, aimed at supporting international and cross-border objectives.
It’s important to remember that Latin American countries are very different in terms of their economic priorities, legislative and political make-up, approaches to security, and perspectives on investment. This diversity presents an added element of complexity and sophistication when it comes to offering specialist fiduciary and family office support.
Q: What are some of the main drivers of demand for international services?
Daniel: For more than a century, the Latin American region has intermittently faced common challenges such as political instability, currency controls, hyperinflation, and personal security risks. As service providers, we need to be mindful of this context and what it means for our clients. One attorney we work with recently put into perspective the importance of privacy to his Latin American client family, as the family’s son was kidnapped; families of wealth in this region face real and ongoing risks to their personal safety.
Betty: Each country needs to be evaluated distinctly, especially in the context of fiduciary services. There are very different tax drivers across the region; as we all know, four Latin American countries have a wealth tax and nine have a transfer tax — and wealth tax is under analysis in two more countries. The local legislation in these countries is increasingly focused on generating additional government revenue and preventing tax base erosion through these policies.
Daniel: Beyond taxes, testamentary freedom (outside of the default forced heirship rules) is another key driver of demand for cross-border advisory and structures. Forced heirship is present in all Latin American countries except for those in Central America. Thus, many Latin American families seek to employ trusts in common law jurisdictions like the US for succession and asset transfer planning consistent with their family’s goals rather than forced heirship.
Betty: First and foremost, families are seeking stability and security. Although the drivers of uncertainty differ across the region, with some countries tending to have a safer and more secure domestic landscape than others, there is still a general demand for assets and businesses to be managed in jurisdictions that can offer stability, security, and a strong rule of law. This is even more of a factor with the present inflationary environment, spurred by the war in Ukraine and the lingering impact of COVID-19, which is increasing social unrest and instability. As per the IMF, price pressures are expected to remain for some time, especially in Chile, Brazil, Colombia, Peru, and Mexico. That’s a lot of motivation for families in the region to implement cross-border planning.
Many families are faced with very difficult decisions about potentially leaving their home countries and associated businesses. By moving some of their assets to a comparatively stable jurisdiction, families can hedge their risk and take more time to evaluate the landscape in their home country without physically moving.
One of our Latin American clients has set up US trusts to accomplish just that: they feel more secure with some liquidity in the US and are able to maintain those assets that they can’t move — real estate investments and a family-owned operating business — in the home country. As a Latin American advisor put it, even if the family could move those assets, they wouldn’t; their networks, understanding of markets, and business connections are all regional. So, there is a major disincentive to try to pick up Andre establish their operating businesses in another region.
Q: Despite the diversity in the region, is it possible to identify any key areas of focus for Latin American families at the moment?
Betty: Latin America is comprised of civil law jurisdictions, where there are generally complexities associated with trusts. As advisors, we often need to help families overcome hurdles to get comfortable using a common law trust. The directed trust structure has helped in the past and can still help many families — but we’re seeing more and more families establish private trust companies (PTCs) to serve as trustee for their trusts. The control and ownership maintained by families in a PTC structure through people they trust helps increase their comfort with the concept of a trustee.
Having said that, advisors must be careful in helping Latin American families structure their international trusts — either through a PTC, directed trust, or other structure — as some governments in the region have modified laws regarding the actions that may draw a trust back into the jurisdiction. This may include a family member’s participation in a PTC’s governance structure or as a trust protector of a directed trust. As fiduciaries, we’re finding that we’re being asked to take on more complete roles to prevent any unintended “mind and management” consequences. Getting to this point, of course, requires building trust over time with the family.
Daniel: There is also a greater understanding of the global transparency agenda and the reporting requirements under international regulations. That has resulted in a big focus on education, which is good news for advisors. Achieving a balance between security and privacy on the one hand with transparency and governance on the other is a big area of focus.
The role of the next generation is also shifting in Latin America. Their growing involvement in family affairs means that wealth transfer and succession planning are in the spotlight, as well as a greater emphasis on philanthropy — currently that is weighted towards home and domestic efforts, in particular the environment and ecology, though the expectation is that this will broaden in geographic scope over time.
Q: How do you see the next 12 months and beyond panning out for Latin American families with cross-border interests?
Daniel: The Latin American fiduciary and family office market has matured significantly over recent years, thanks to a greater understanding of and comfort with trusts and an educational focus on how international fiduciary structures work. We expect continued growth in demand for cross-border structures from Latin American families, driven by family goals, geopolitical and personal risk in home countries, and rising generations, who are taking an increasing interest in family affairs.
We foresee not only an increased focus on cross-border planning and US investments, but also an opportunity to meaningfully integrate rising generations into the planning process and fiduciary structures. Successful advisors will think about a family’s needs holistically, considering both the technical and “softer” aspects of wealth transfer planning.