Have you heard of a colleague who has been through years of struggle to find out what assets in foreign countries belonged to his father? Yes, he had some real estate in Spain, but there must also have been bank accounts – but in which banks? Or perhaps you have a friend whose wife has filed for divorce in the UK and who is now attempting to find out if the divorce settlement will be based on UK law (ouch!) or the law of the country where they married?
Have you witnessed the struggle of a wife and children of a business partner who has died unexpectedly: the family inherited shares in a holding company and are now unable to make timely exit along with other investors in a local startup because the wife cannot dispose of assets legally held by underage kids without obtaining the court’s consent?
Perhaps you know somebody who is involved in a tragicomic war dance with their ex in settling a dispute over whether a diamond wedding ring was meant to be joint property of the spouses, or if the pile of expensive golf clubs in the corner belongs to him – the guy who actually plays golf – or her?
You may think that most people have nuptial agreements – and common sense. Think again – nuptial agreements are often made in a hurry or their scope is too narrow. And as for common sense – well, in certain situations, there is no scarcer resource.
New approaches to cross-border living
The needs of private individuals to work around various legal issues have become increasingly sophisticated as our region has grown wealthier. Life has moved on from the days when a person’s only worry was to take care of tax issues regarding their business, employment contract or selling a summer home.
The time when only death and taxes were certain is gone. With Mr Musk in the game, death becomes a mere concept, and speaking with the Estonian tax authorities you discover that investment accounts should be declared in the name of the deceased.
These days, many successful people have several houses in different countries. Laws speak of “a place of residence” or “centre of vital interest”, but where is your place of residence if you have business in one country, family in another and hobbies in a third? Do you know where to pay taxes, or which taxes to even pay, for that matter?
People tend to forget that if they have received interest payments from one country and withholding has been applied then their home country can tax the same interest again with personal income tax. It is left to the individual to choose whether to claim a refund from the paying country’s tax authorities. This often leads to double taxation of the same income because tax refunds take time and effort.
Are you aware that your last place of residence will determine which law will apply if you suddenly pass away, and your heirs can be stuck in long proceedings unless you settle some things for them beforehand?
Personal trademarks require management
Today individuals can turn themselves into trademarks and you must inevitably ask if you should manage your own trademark as a company? Will you register a trademark, and should you do it in the EU or in different countries separately? What about damages if somebody “leaks” untrue information about you?
Family constitution brings clarity
Market players, especially startups, often prefer families and family offices as investors, since they often bring in “smart money” and such investments are long term. However, not every joint venture established for the purposes of equity investments is a family office. What distinguishes family offices from regular joint venture investments? Do family offices bear legal risks when managing family wealth, and how can you set up effective administration? To answer these questions means keeping risks under control and deals transparent.
Successful families often succeed in the long term because they know how vital transparent, clear and motivating communication is within a family. Each family member should know what the family’s mission and legacy are, what values they hold dear in running the family business, how decision making is agreed, which family members have which obligations, how profits are distributed and which philanthropy projects receive support. Families who would like to approach these questions discreetly but firmly could consider drafting a family constitution. This can be a basis for shareholders agreements, articles of association, even a will.
Art investments require protection
Art has become an investment class in its own right, and the art market is lively and comes in all colours. While there are many remarkable private collections and private museums in the region, purchasing agreements often remain basic, leaving important details, such as questions of provenance or authenticity, out of scope. If a work of art is obtained from the primary market, the author’s consent and authenticity are often left unaddressed. Art investments have become a multidisciplinary field involving questions such as valuation, insurance, damage in transit, authors’ rights and taxation. You wouldn’t believe how entertainingly colourful the tax community’s opinions can be when it comes to taxation of art.
Succession planning safeguards the future
Succession planning is complicated in the region, since the Baltics and Belarus do not recognise trusts and we lack laws that could make private foundations attractive. Thus one needs to operate in the twilight of commercial, family and inheritance law. People often come up with solutions which do not protect their long term interests. The only existing alternative is an assurance policy which can be used for succession purposes, but this is not recognised the same throughout the region.
There are many questions that private individuals confront while managing their wealth and private affairs. Our Private Client team is dedicated to finding the answers to take care of our clients so you can do what you do best.
If you would like to get in touch, please contact counsel Kärt Anna Maire Kelder – head of the Private Client team in the Baltics and Belarus.