Help! Heirs live abroad

My brother and I are continuing our father’s manufacturing business, which is steady work,” says a reader, 68. “My daughter and my niece are married to fellow professionals, and although they have shares, they prefer not to work with us. My son, 35, studied in the US, and is now working there. My nephew, 32, is engaged to a woman who is working in Sydney, and he is not sure if they will settle there or here. We have loyal employees who manage research and IT, but my brother and I had expected our sons to succeed us. My son wants to continue working in the US while also flying back here every two months to oversee operations. My nephew is undecided. I don’t think it is easy to work abroad while also working here. What do we do?”

My reply

Not only is it difficult to work both in the US and in the Philippines, but I also believe it is impossible to do so. You did not give details about your business, but generally, operations require flexible decision-making based on regular updates. Skype notwithstanding, how can your son take charge when he is here only intermittently?

Ownership is different from management; though not ideal, it may be possible for him to be a responsible shareholder while abroad, as long as he is updated regularly about what is happening here.

The same holds for your daughter; she prefers to be an owner rather than a manager, but she cannot turn a blind eye entirely, or else how can she make wise decisions as a shareholder and a board member in the future?

Unfortunately, your son needs to choose. Each decision has its pros and cons. What are the merits of staying in the US? Perhaps, he is engaged to his work. Or he is paid very well. Or he prefers freedom outside of family control. Or he wants to explore the world before settling down.

What are the merits of coming back? He will not be working for someone else, but he will be building his family legacy, which can be passed down to future generations. He may have a bigger support system (family, helpers, friends) which is invaluable when crunch time comes.

Taxes

You might not have thought about the biggest issue though: International tax laws.

You did not say if your son is already a US citizen, or aiming to be one. Your nephew seems open to living for a while Down Under.

When your son or your nephew live in the US or in Australia, they need to follow laws, including taxes and inheritance.

I am not a lawyer nor a financial adviser, so let me quote what Lee Woon Shiu, managing director of the Bank of Singapore, told Wealth Magazine in April 2017: “The nationality/residency/domicile status of the family members would have a direct impact on the tax efficacy of the current manner of asset holding as well as the subsequent transfer through generations. Given that US estate duty taxes… will shave off up to 40 percent from the family wealth, and Australian …income tax rates are at a hefty 45 percent… any factors linking family members to these high tax jurisdictions will have to be carefully evaluated and the appropriate action plan implemented.”

Look for a tax lawyer or bank adviser who is familiar with US and Australian tax laws immediately.

When the implications of staying here or abroad are clearly laid out, then you as a family will be able to make better decisions.

In the meantime, explore other options. Are you willing to sell the business? Or perhaps groom successors from non-family members? You have good people working for you, but have they been trained to take on leadership positions? Have you and your brother decided if they can succeed you? It might be wise to prepare for any eventuality.