The management of luxury assets has become a critical concern for many high-net-worth individuals. From fine art and real estate to yachts and precious jewellery, these assets often require specialised care and attention. In this Q&A with Private Client Executive, Tracey Neuman, delves into the intricacies of luxury asset management, succession planning, and the role of trust and legal structures.
1. What specific luxury asset management services do you offer? And what differentiates you from other companies?
"You name the luxury asset; we look after it. What differentiates us from other companies is that we're not scared to hold it.
A lot of trust providers only really want to hold investment portfolios that are backed and managed by professional investment managers because that's easy.
There are never questions around insurance, funding, staff, and all those sorts of things, but we deal with that.
For example, I've just facilitated a transfer of domestic staff from one client entity to another, in accordance with the Transfer of Undertakings (Protection of Employment) Regulations in the UK. We had UK staff employed via a Guernsey company, which we've just transferred to a different entity. It basically means that the employees' rights continue as if that new entity has always been their employer, so they get a continuation of service on the same terms. It was key to us that the family reorganisation did not negatively impact the long serving members of staff."
2. How do your services cater to different types of luxury assets?
"Catering to luxury assets is horses for courses and it depends on what they want them for. If your yacht is just the family yacht, then there are different requirements compared to if it's going to be chartered out to third parties or at least offered as chartered to the parties. For art, is it purely investment, so it's basically stored in a Freeport, or is it on the wall somewhere where someone could damage it?
The location of the assets is also key, particularly with something like art, as they can be moved between different jurisdictions. This not only necessitates an understanding of the transport requirements and insurance, but also tax, as there could be import duty to pay or tax consequences for the structure or beneficiaries. This may result in a need to rethink plans or to think outside the box. It may be better from a tax and insurance perspective to have a copy on your wall and keep the original somewhere safe.
You then have examples such as the Damien Hirst piece sold with the NFT. The buyer had to decide which to keep after a year as the other would be destroyed. Would you rather have the real painting or a token that allows you to own it in the Metaverse? No one else will be able to create that token to have that art in the Metaverse, so it would never exist there.
The question is, could you in the future create that token as the owner of the original?
Luxury assets can also lead to family conflict. This can arise where they are all beneficiaries of a trust holding an impressive property. There becomes a question about which family members get to use it and when. Have we got a rota? Who gets the first pick of the weeks? Balancing requirements of the beneficiaries and ensuring everyone is treated appropriately is crucial, particularly if the arrangements give rise to differing tax consequences for the beneficiaries.”
3. What is your process for onboarding clients with luxury assets? And how do you assess and document the value of a client’s luxury assets?
“All clients would need to go through our standard on-boarding requirements. In addition, you need to see evidence of ownership of the luxury assets. Then, you'd look to have a recent valuation because if you're taking over the ownership of those assets, you and the insurers are going to need to know what it is worth.
Depending upon the asset there may be other requirements. For real estate, for example, you may want to carry out similar searches as if you were buying it on the open market. This will allow you knowledge of any issues with the property such as if the roof is leaking—all those really mundane things are important.
Ongoing communication is crucial. Naturally, we're in touch all the time. As generations move through, the requirements change.
The onboarding process involves verifying ownership and obtaining recent valuations of the assets for insurance and assessment purposes.
“We’re regularly in contact with all of our clients and we provide dedicated relationship managers for all of our high-net-worth individuals (HNWIs).”
4. Do you offer a dedicated relationship manager for HNWIs?
“Yes we do – typically, each of our clients has a senior person or director of the client business as their key contact supported by a team.”
5. How do you assist clients in maintaining and preserving the value of their luxury assets? And what tools or technologies do you use to manage and track luxury assets?
"We assist clients by either serving as the directors of the company that owns the luxury assets or as the trustees of the trust that owns them. We have the responsibility for these assets in the same way as any reasonable, prudent owner. This means we must preserve the assets and ensure they do not fall into disrepair. In the context of a trust, failing to do so would be a breach of fiduciary duty.
Our wider team uses the latest instance of eFront® Invest suite, continuously leveraging the latest innovations to deliver unparalleled value to our clients. Our proactive product development roadmap includes tailored portfolio and fund analytics, AI-powered document processing, and digital investor onboarding.
Increasingly, you see various funds for luxury assets like real estate funds and wine funds. For instance, with wine funds, they buy the best vintages, and you buy into that fund. You don't get the wine directly, but it's a way to generate value."
6. What strategies do you use to facilitate the smooth succession of luxury assets?
"So, anything we own in a trust would have a letter of wishes that sets out what the original founder intended for those assets and how they want them to be used. If it's a company, there will invariably be some form of shareholders' agreement and guidance as to the use of the assets.
There are lots of binding and non-binding agreements and guidance that can be put in place, and we regularly update those because things change.
Strategies include detailed discussions with clients to understand their wishes and educating the next generation. Structures can assist in deciding the inheritance of luxury assets, as well as acting as a mechanism to preserve them for future generations.”
7. What types of trusts or legal structures do you recommend for luxury asset succession?
"Usually trusts are very good because they are brilliant succession tools and are very flexible, allowing for regular updates. Similarly, a foundation might work better for civil law jurisdictions. Both of these structures welcome guidance from the wealth creator and are sufficiently adaptable to allow for future legislative or regulatory change without necessarily the need for full scale restructuring.
You can use corporate structures, and some people prefer that, but generally, a corporate structure is less flexible. You have to ensure the next generation of shareholders have appropriate rights as shareholders. This may involve creating different share classes to limit voting rights for example. There are a lot of options, and being able to offer the full set of service provision, as we are, is crucial."
8. How do you handle tax planning for luxury assets, especially regarding succession?
"I have one catchphrase for you to keep in mind: location, location, location. Decision making is going to depend on where the assets are located, so that's often one of the key questions. If you're talking about real estate, succession is often governed by the local law, so you might not have any choice. For example, if you have a house in France that's not structured through an SCI, it might have to go to the children. You really need to understand the local law in such cases.
If it's a movable asset, like a yacht, car, or art, you wouldn't want your yacht moored in the UK if you're not a UK resident or domiciled person because you might face a 40% inheritance tax on it if the owner died unexpectedly. Moving it outside the UK or structuring it through a corporate entity to change the status of the asset can help to manage this.
Real estate is the one you can’t so easily pick up and shift! And you have to consider succession where a jurisdiction forces heirship. Another consideration is matrimonial regimes, as certain jurisdictions will deem assets to be jointly owned by husband and wife, which is relevant in divorce situations, even if the assets didn't start that way.
It's very important to get local law advice. The big one is often the tax bill. For example, if you have a UK house and you want it to stay in the family, you need to fund the 40% inheritance tax charge. If your house is worth £20-30 million, 40% is a big chunk of change. So, you're looking at using insurance or trying to pass the assets down to the next generation earlier."
9. What measures do you implement to protect the physical and digital security of luxury assets?
"I will focus on privacy rather than just digital protection. By structuring a lot of these assets so that the registered owner isn't the high net worth individual, the ownership is under our name with a big corporate address. This way, a degree of privacy can be maintained which can be paramount in mitigating the kidnap and ransom risk for very high net worth individuals — this sounds extreme but it’s a real concern.
It is possible to engage lawyers who ensure the copyright on the sale of a property is held by the owner and sold to the purchaser. This means all the particulars for the sale of the property are copyrighted, allowing the new owner to force the removal of those details from the internet once the property is sold. This prevents burglars from finding floor plans and figuring out how to access the house. It's not an obvious strategy, but when you hear it, you think, it's genius."
How can Ocorian help with luxury asset management?
Ocorian has more than 50 years’ experience of servicing the needs of private clients, helping to protect, preserve and plan for their wealth now and in the future with offices across the world.
Our services include trusts and companies, foundations, family office, lifestyle assets, succession planning, philanthropy, regulatory and compliance reporting, family investment companies and investment management support.
