A “Back-Up Plan” is a comprehensive citizenship, residence and domicile solution that “plans for the worst…and hopes for best”, according to immigration and tax expert David Lesperance.
Its purpose is to provide a quick and easy exit plan that can be instantly initiated should any situation threaten the individual or their family’s financial security or physical wellbeing.
Why does someone to make a back-up plan?
Triggering events can range from the personal (a divorce, lawsuit or business liquidity event) to more general concerns such as political change, social unrest, natural disasters and pandemics.
For many HNW clients, a growing financial concern is the increasing popularity of ‘Tax the Rich’ policies in government policy.
The unprecedented cost of the covid-19 virus to government pockets will only serve to steepen the curve of this trend.
How to make an effective back-up plan
There are “Four Rules of Success” for an effective back up plan.
Rule 1: Each family’s situation, concerns and goals are unique.
There is no ‘one-size’ fits all approach. Each HNW family will have their own unique combination of needs – cultural, financial and social.
This necessitates a bespoke, holistic approach.
Rule 2: It must make financial and personal sense
Firstly, the cost of acquiring and maintaining a back-up plan must be less than the “cost of failure” – namely; the financial and personal cost to your family’s wellbeing and wealth of any negative event.
Secondly, the proposed plan must be “livable” by the family members it is meant to protect and benefit.
It loses its value if the life it facilitates is resented or rejected by the family it serves.
Rule 3: The selection of a property is the LAST, not the FIRST decision.
Many Citizenship-by-Investment or Residence-by-Investment real estate products attract HNW families who are considering acquiring a second citizenship.
However, choosing the destination before thoroughly researching how that country could best serve a family’s financial and social security is flawed.
After considering the bigger picture, it is often discovered that the jurisdiction of the purchased property is either not a useful choice.
Rule 4: Seek the right advice, not the cheapest.
It’s vital to get the best advice in the planning stage.
Many ‘immigration advisers’ are paid commission from the Residence or Citizenship by Investment product that they recommend.
This undisclosed commission may be several times more than the “fee” they charge to the client.
Inevitably the ‘adviser’ has a vested interest in selling the product that pays whether or not this offers the most long term value to the client.
This type of adviser will also not discuss the “hidden costs” such as taxation, physical presence requirements or adverse divorce regimes.
What are the elements of an effective back-up plan?
Alternative Citizenships
Firstly it is important to determine whether the family’s current citizenship recognizes the concept of “dual citizenship”.
If the client’s country imposes restrictions (such as in China and India) special care and protocols in the acquisition and maintenance of alternative citizenships are essential.
Then you have to decide which to pursue.
Various countries offer “citizenship by descent”.
This is a process which allows you to apply for citizenship based on having family born in that country.
Some countries will bestow it upon those with family trees that go back as far as several generations.
It is vital to look thoroughly into a client’s family history to discern the best course of action available to them
Many countries also offer a method for an individual to “earn” citizenship through naturalisation.
Such laws can take many forms and can include the following:
1. Meeting certain religious criteria: eg Israel’s Law of Return;
2. Meeting certain physical presence, tax residence, language and local knowledge criteria;
3. Citizenship by Investment: The traditional naturalisation requirements are waived where specific economic contributions are made; and,
4. General Authority: In many countries the power to grant citizenship is granted to some government office or body on their own criteria. This might be contribution to the state in sports, humanities, art, economic benefit, etc.
Alternative Homes and Business Locations
An effective back-up plan should allow the client to relocate with speed and assimilate ‘normal life’ with relative ease.
Vital components that make this plausible will vary according to each client’s needs, but generally it will require the purchase of an alternative home and business location.
It may also include work and study permits for the wider family.
As ever, planning is key – any alternative residence(s) should consider the tax ramifications (and opportunities) that would arise should all or some of the family decide to make this location their new “tax home”.
Alternative Financial Resources
An ‘escape’ plan is ultimately flawed if the client finds themselves unable to readily access financial resources once in their new location (because, for example, of political intervention).
It is vital to work with clients’ financial advisers to ensure that appropriate alternative resources are available for, if needed.
These alternative resources do not necessarily need to be in the same jurisdictions as the family’s alternative residences.
In fact, given tax and privacy issues they are often NOT in the same jurisdiction.
Complementary Services
Depending on the specific client family threats and concerns, it may also be prudent for the back-up plan to include additional services such as:
- Global Medical Coverage
- Kidnapping and Evacuation Insurance
- Security reviews and Services
- Educational Consultin
- Geopolitical Intelligence Services (so that you can see when threats may be becoming imminent)
Maintaining effectiveness
An effective back-up plan is meant to provide safety and opportunity beyond your lifetime, so it is vital to incorporate a consistent monitoring, updating and educational element to maintain its effectiveness in an ever changing political, social, and environmental climate.
This article was written for International Adviser by David Lesperance, tax and immigration expert at Lesperance & Associates.
