By David S. Kerzner, Ph.D.[1]
I received a call from a colleague of mine, Deborah, who specialized in U.S. estate and tax planning in the West. She wanted to know if I could help her with an offshore account question for her clients. The family owned a multinational manufacturing company with operations in 40 countries. While assisting her clients to deal with this very serious problem, I became curious about other aspects of the U.S. foreign reporting for group. After some international corporate tax detective work I was astonished to discover that there were massive errors in the group’s reporting. Worse, these errors went back many years, and as a result, the statute of limitations had not closed. The family’s succession plan, however brilliantly executed was built on a ticking time bomb.
Deb’s clients would ultimately be ok; however, the same could not be said for another family I was asked to assist some years earlier. The second family had similar problems but chose to ignore my written recommendations. Their private company operations in 25 countries pulled in revenue in the 9 figures annually. The IRS ultimately caught up with them causing irreparable business and family strife.
Both families in the above real stories had wills and trusts. Everyone had the “best” accountant and the “best” CPA firm. Their estate planning did not prevent existential failures in U.S. international and corporate tax reporting. Another estate planner recently bragged to me that he was doing wills for a U.S. married individual in Canada with a net worth of $50 million. He said that he had taken care of everything with wills and trusts. I asked him if anyone was taking a careful look at the client’s legal structure and returns and he just made some strange noise (sounded like no) on the phone and said he had to go.
The problem is that individuals who have international facts in their families or businesses often have key tax issues which may require core professional competencies other than those dealing with succession planning, such as international tax law, international corporate tax law, and multi-jurisdictional accounting to name a few. To identify these issues for a high net worth client requires a different approach which I call wealth optimization. Wealth optimization takes a holistic view of a client’s tax, legal, and accounting, and financial planning issues. Wealth optimization must be by definition a team effort on the part of a client’s counsel, accountant, and financial planner. Moreover, depending on the client’s particular facts, professionals with special expertise (e.g., transfer pricing), may also need to be included. Wealth management that embraces the benefits of wealth optimization over estate planning is more likely to succeed in identifying a client’s tax obligations and needs; to reduce the risk of negligence; and overall assist in the goal of preserving wealth.
This article is for illustrative purposes and is NOT intended to be used for legal advice or as a substitute for timely and proper multi-jurisdictional and multi-disciplinary legal counsel.
1) David Kerzner is a U.S. cross border tax lawyer admitted to the Ontario Bar and the New York Bar at Kerzner Law in Toronto and Buffalo. He is the Editor-in-Chief and Principal Co-Author of The Tax Advisor’s Guide to the Canada-U.S. Tax Treaty, published by Carswell, a division of Thomson Reuters, a 2,500 page loose-leaf and online treatise (on TaxNet Pro) available for $1,000.00 and published by the largest legal publisher in the world.