Historically, global families of wealth have sought to diversify their planning footprints by expanding their investment strategies, establishing multi-jurisdictional structures for multi-generational family members, and exploring niche opportunities in new markets.
Increasingly, international families have focused on developing touchpoints specifically with the US through their wealth planning structures. This trend is reflected in a rapidly growing US family office industry, with staff levels rising 25% and outsourcing services growing 21% year-over-year (Campden Wealth, North America Family Office Report 2021).
It’s a trend that looks to persist. So, what are the drivers and what are the implications for advisers to international families?
The anticipated mobility of family members is a major factor in creating and building US footprint, with global families of wealth often having children or beneficiaries in the US both temporarily and permanently. There are several reasons for this.
First, many international families are drawn to the appeal of the strong US education system and therefore opt to send their children to an American boarding school, college, or university. Those children who study in the US often stay after graduating to pursue attractive employment opportunities as they begin their career, building connectivity for the family in the country. This has implications for second- and third-generation family members as US tax residents. For otherwise non-US families, this can result in a need to create bespoke US structures for tax efficient wealth transfer and succession planning purposes.
Second, global families of wealth often have plans to immigrate to — or back to — the US in the future. In some scenarios, the patriarch, matriarch, or other wealth creator may contemplate immigrating to the US and wish to put in place a planning strategy to establish, quite deliberately, a greater physical presence in America and to cement ties with the US market.
Some former US residents or beneficiaries may look to relocate back to their “home” country after time away. They may also need to put in place structures to facilitate wealth transfer and, for US resident beneficiaries, pre-immigration measures in contemplation of wealth transfer events.
In these increasingly common scenarios, it is vital for families to establish appropriate structures in the US to support and complement a change in residence, a pre-immigration strategy, or a change in succession planning — to avoid cases, for instance, of forced heirship situations in civil law jurisdictions.
Beyond the physical family footprint, global families are also increasingly setting up US structures as a fiduciary “flight to quality.” This refers to quality in terms of US capital markets, financial markets, regulatory systems, and relative political stability.
As the largest financial market in the world, the US offers international families unattractive jurisdiction from which to make US investments, establish US-based business ventures, access US capital, and engage US specialist advisers. The United States is already a well-established and successful platform for family offices, with total family wealth estimated to stand at US$269bn and 86% of family offices in the region witnessing a growth in their wealth in 2021 (Campden, 2021).
These families will consequently require US infrastructure — from corporate structures to enable business launches to trust and investment accounts to support portfolio ambitions and asset protection strategies. This is especially the case when it comes to real assets, a prevalent investment vehicle for many international families in which 38% of US family offices also directly invest (Campden, 2021).
The US also has a “flight to quality” appeal with regard to stability. For instance, the Latin American region has long faced geopolitical uncertainty — including political instability in Venezuela, Peru, and most recently Colombia. Additionally, local legislation has increasingly focused on generating government revenue and preventing tax base erosion through proposed “wealth" and related taxes on wealthy individuals. Latin American governments — most recently Mexico — have also heightened enforcement of cross-border taxation and modified laws regarding the actions that may draw a trust back into the jurisdiction.
Many Latin American families perceive the US as offering safety, certainty, and stability against the backdrop of the geopolitical uncertainty, rapid and unpredictable regulatory changes, and economic turbulence in their home countries. They often seek to hedge investments in the US markets due to devaluation of their local currencies. And for families with operating businesses, the perceived risk in their home countries is a threat to both company management and their overall wealth transfer planning.
The US presents global families with the unique combination of a stable government, well-regulated capital markets, a strong rule of law at both federal and state levels, and mature, established financial systems. Moreover, the US offers both physical proximity to many international families — especially those in Latin America — and accessibility to advisers with specialist skillsets and supporting expertise.
Generally, families are increasingly confident that incorporating US structures into their holistic strategies can help protect their assets for future generations and simultaneously support their growth, business, and investment objectives.
Optionality is also a key consideration. Establishing a touchpoint in the US is part of a broader strategy for families, who are keen to have structures across multiple jurisdictions to minimize the risk of concentrating assets in just one or a few jurisdictions.
With families increasingly realizing the benefits of this approach, advisers are looking to the US as a mature and sophisticated jurisdiction that may help client families evaluate and manage risk and “future-proof” their strategies in terms of succession and legacy planning. At the same time, this approach provides global families with flexibility, stability, and the opportunity to grow their investments and access new opportunities.
What does this mean for advisers to global families of wealth? Ultimately, at the heart of this movement is a family’s objective to realise the benefits that US connectivity may offer whilst ensuring it retains the multijurisdictional dynamic it has worked hard to achieve. Of course, the suitable structures for each family ultimately depend on their specific planning objectives, the jurisdictions involved, the time horizon, and other factors. All families are unique and championing the need for tailored solutions has long been the bedrock of solid family advice.
The need for specialist advice and support grows when there are considerations around family members becoming US tax residents, immigrating to the US, or locating assets in the US. Such circumstances can be complex when applied to an overarching international structuring framework. There are, however, some common structures for global families with existing or planned US tax residency or US-based assets.
Families that already have foreign trusts but need to plan for beneficiaries who are or will soon become US taxpayers, for instance, often create US irrevocable trusts to receive distributable net income (DNI). Doing so ensures that income does not become undistributed net income (UNI), which may be subject to significant taxes and interest charges.
These “receptacle trusts” allow families to hold a portion of their assets onshore in the US to maintain the benefits of US trust situs. However, it is vital that families set up such irrevocable onshore trusts before the grantor or beneficiaries become US tax residents.
Meanwhile, families with first-generation offshore wealth but second-generation onshore wealth must undertake a full evaluation of their structures with legal counsel to determine not only what structures should be established, but also the timing and implementation plan.
If beneficiaries will be US tax residents when they begin receiving distributions, for instance, a foreign grantor trust or US non-grantor trust may be appropriate, depending on the family’s offshore wealth structure, their countries of residence, and anticipated distributions.
It’s also worth considering that families that do not have (or plan to have) US tax resident family members may still benefit from planning with US structures for US assets. For example, they may choose to hold US investments — often real estate and financial assets — in US trusts or other corporate structures.
Ultimately, the migration of people and structures to the US is a trend we expect to see sustained over the coming years and there are good reasons for families to look to the US to help support their legacy, succession planning, business, and investment objectives.
However, establishing the proper vehicles backed up by solid advice and ongoing review is increasingly important if the objective of looking to the US in the first place – to obtain flexibility and access new opportunities – is undermined by a failure to understand how US vehicles interact with and complement existing non-US structures.
A wealthy multi-generational European family uses an offshore PTC to structure their long-term wealth transfer planning. The primary beneficiary, now an adult and aUS tax resident, receives income for living expenses (DNI from financial assets) through US irrevocable non-grantor trusts.
A wealthy multigenerational Latin American family has engaged in careful planning through foreign and US trusts; they own two operating businesses and other financial assets through fiduciary structures in their home country. The family’s many beneficiaries live all over the world, including in the US; US trusts are designed to receive and domesticate income (including dividends from the operating business) for US resident beneficiaries.