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Financial planning in companies and senior executives

Business Law
Financial planning in companies and senior executives

Estate planning is a legal specialty essential for protecting and managing substantial wealth, particularly for high-level executives and families with significant assets, including business holdings.

Through legal and tax strategies, we can ensure that transmission of family assets is safeguarded for future generations, mitigating business risks, conflicts, and litigation. Moreover, it is crucial that the tax burden is properly optimized.

In this article, we will discuss the importance of proper legal and financial advice for the estate planning of companies and executives, the effective governance of family wealth, and the structuring of assets—essential elements to ensure the continuity of wealth over time.

However, before delving deeper into the content, it is essential to understand what estate planning is and how this legal specialty can affect you to properly manage and implement strategies that protect your assets in the long term.

What is Estate Planning?

Estate planning is the discipline through which a person's, family’s, or company’s assets are structured and managed to optimize their use, protect them from legal, tax, or regulatory risks, and ensure their protection over time.

The strategy involves implementing guidelines that cover asset protection, tax planning, business structuring, and more, using a comprehensive approach, particularly for high-level executives and companies with significant assets.

Constant European and community regulations mean that large family and business fortunes face significant challenges, such as asset relocation across various jurisdictions, capital preservation, and the management of business assets. This makes proper planning critical to avoid a reduction or loss of economic capacity.

Wealth Advisory for Companies and High-Level Executives

Companies and high-level executives require legal advice to efficiently manage their wealth. The main legal challenges are exposure to various tax systems and the protection of business assets. Below, we outline the three main challenges in estate planning:

1. Tax Optimization

Tax optimization involves using financial methods to benefit from exemptions under tax legislation and reduce tax burdens. Among the main tax strategies, we find:

- International Tax Treaties: It is essential to take advantage of international double taxation treaties to prevent assets located in different countries from being taxed in more than one jurisdiction, avoiding double taxation in each jurisdiction.

- Business Succession Planning: For high-level executives holding shares or stakes in private companies, it is important to plan for the transfer of this ownership or control to ensure a smooth transition to the next generation without excessive taxation.

2. Asset Protection

Asset protection is another key pillar of estate planning. Like any person or business globally, assets may be exposed to legal, business, or regulatory proceedings that could erode purchasing power. To mitigate these risks, the following legal strategies can be implemented:

- Trusts: Establishing a trust allows assets to be managed by a trustee for the benefit of third parties, such as heirs. For example, setting up an irrevocable trust offers greater protection from creditors and potential legal claims, as the assets transferred to the trust are no longer directly owned by the individual.

- Holding Companies: Creating a holding company enables personal or business assets to be grouped under a single organization, protecting them from risks related to operating businesses. This allows the separation of different business lines, with separate management for each activity. This corporate structure facilitates asset transfer to future generations while benefiting from attractive tax regimes.

Good Governance in Family Wealth

Good governance of family wealth is essential to ensure the proper management of large fortunes and the transfer of family assets to future generations. As family wealth grows and diversifies, there is an increased need to implement a governance system that establishes rules for managing, making decisions, and distributing family assets.

1. Creating a Family Council

A family council is a key governance structure that involves all family members in strategic decision-making regarding the wealth. The council can set guidelines for succession, asset distribution, and future investments.

A specialized estate planning attorney can help implement these rules and guidelines in the form of agreements to define the roles and responsibilities of each family member. A positive aspect of creating a family council is the prevention of future family disputes, ensuring that decisions are made by consensus and aligned with the proposed objectives.

2. Establishing a Family Protocol

A family protocol is a document that outlines the rules governing the involvement of family members in managing the wealth. It typically includes guidelines on who can assume leadership roles within the business, how important decisions are made, and how profits are distributed among family members.

This document is essential for preventing family conflicts and ensuring a long-term vision for wealth management.

Wealth Structuring: A Comprehensive Approach

Wealth structuring aims to create a financial system that allows for the efficient management of assets. It provides an opportunity to protect and optimize assets over the long term.

1. Asset Diversification

Proper wealth structuring requires asset diversification, not only across jurisdictions but also by asset class. For example, it is important to differentiate between real estate in Madrid, financial assets regulated by stock markets, such as shares and bonds, and assets located abroad. This diversification helps reduce risk and ensure sustainable growth.

It is advisable to have a legal team that can provide advice when implementing diversification strategies, based on the client's objectives, wealth, liquidity, risk tolerance, and tax implications.

2. Establishing Foundations

Foundations are nonprofit organizations that can serve as shelters for the proper management and protection of wealth. Unlike trusts, this legal entity is often used to protect assets while having a charitable purpose, balancing economic sustainability and social contribution.

Is Estate Planning Necessary for You?

As with all matters, it depends on the personal or family wealth of the client. Estate planning is typically applied to substantial wealth but can be used for all types of assets. Proper advice in this area allows for tax optimization, legal risk protection, and efficient succession planning.

Furthermore, implementing good family governance and proper wealth structuring is crucial to ensuring the sustainability of wealth over time.

Therefore, we recommend contacting a corporate law firm to protect your assets and ensure their long-term continuity and growth.