Summing up on estate planning for alternative investments
While some alternative investments, such as digital assets, pose specific estate planning challenges because of their nature, others, such as real estate, regularly attract beneficiary disputes.
Each investment class requires a thorough assessment to determine its value, potential transfer implications, and future destiny within the family's overall wealth.
Involving your family
Assets with an emotional attachment may not receive the same appreciation from your successors as you are feeling for them.
That's why involving your family in the estate planning process will clarify if specific items should and will remain with the family.
Your family members' feedback will allow you to make informed decisions and, if needed, arrange for their benefit in specific structures.
Take an art collection as an example. Sometimes having it transferred to third parties under a structure that ensures administration according to the collector's wishes can result in an ideal outcome for everyone within the family.
Estate planning is also liquidity planning
Liquidity becomes particularly important for two scenarios: compensating beneficiaries in divisions and settling inheritance taxes.
If you don't plan for liquidity, fire sales will be risky after your lifetime. Your beneficiaries may suffer a discount or even run into more tight and severe liquidity situations.
For digital assets, you'll also have to consider volatility, as the current market environment shows. In particular, past evaluations may be relevant for tax purposes and cause a mismatch in covering eventual taxes.
Starting early enough
While it is vital for any situation, particularly for wealth owners holding alternative investments, early estate planning is critical for predictable and effective outcomes.
You have many opportunities to optimize your estate; lifetime giving is just one example. Allocating alternative investments can help avoid disputes within the family during and after your lifetime.
The first step is the assessment of your assets to obtain a clear inventory. You can then define your and your family's goals and tackle the design of your estate plan with the assistance of your trusted advisors.
FREQUENTLY ASKED QUESTIONS
What are the unique considerations for different asset classes in estate planning?
Due to their unique characteristics, different asset classes require specific attention in estate planning.
For instance, alternative investments like private equity and venture capital often have long lock-up periods and may lead to liquidity constraints during wealth transfer.
Digital assets, such as cryptocurrencies, require secure private keys or seed phrases storage for wealth succession. Art and collectibles require comprehensive documentation and careful consideration of the beneficiaries' interests.
Real estate, especially in international scenarios, may trigger the so-called scission of an estate, leading to legal and tax complexities.
Therefore, each asset class requires a tailored approach in estate planning.
How can one manage liquidity constraints in estate planning for alternative investments?
Managing liquidity constraints in estate planning for alternative investments involves careful planning and using specific tools.
One approach is to diversify over fund strategies and vintages to prepare for exit scenarios if needed. Life insurance policies can also be used to provide liquidity to cover eventual estate taxes and other costs.
For direct investment strategies, liquidity should be considered in light of potential transfers since exiting a direct investment may take long periods.
The private banking and wealth management industry is also developing new offerings with liquidity mechanisms to cater to individual investors.
How can one ensure a smooth transfer of digital assets in estate planning?
Ensuring a smooth transfer of digital assets in estate planning involves secure storage of private keys or seed phrases and clear instructions for beneficiaries.
Not including private keys and passwords directly in a testamentary disposition is crucial, as several people may access such information in probate procedures.
A secure solution is the storage of private keys and passwords in a notebook in a safe deposit box. Another option is to structure and hold digital wealth under a trust or foundation where a professional service provider takes care of the administration.
The industry is responding to the needs of wealth owners with several digital asset storage solutions, including private key management.