Following the recent Texas Freeze President Biden has declared a major disaster in the state. Millions have been without power and clean water in freezing conditions.
What will you do when disaster strikes?
Here Founder David Lesperance discusses how backup plans can protect your family’s wellbeing as well as your wealth.
This past week’s events in Texas have highlighted the value of always having a Backup Plan. Backup plans are not only put in place by my clients to protect family wealth, but increasingly the family’s future well-being is of major concern.
With climate warming presenting more extreme weather conditions and the political temperature heating up worldwide – ‘disasters’ become increasingly likely. Indeed Texas’ last state of Emergency was just three years ago: Hurricane Harvey.
Ten years ago I arranged a Backup plan for a for a Houston executive who was afraid of such an event. Because he had a Backup Plan in place, his family, personal and business lives were fully protected when the flooding came in Harvey’s wake.
It seems timely to revisit this case study. It’s a great example of just how vital a thoroughly executed backup plan can be in times of crisis.
Houston Oil Executive Ensures Continuity for His Business…and Family
Our client is an American oil investor who was working and living in Houston, Texas with his young family. Six years before Hurricane Harvey hit he set up his family’s Back Up Plan through L&A. As a risk-averse individual he wanted to be prepared should there be a natural, political or business event that would disrupt his business or endanger himself or his family’s safety.
How we formulated the Backup Plan
The Back Up Plan had two major components:
- We secured economic citizenship in a European Union country for him, his wife and their children. This gave them the immediate ability to expatriate from the US should tax reform negatively impact his tax burden. In particular, he was concerned about increased tax rates, changes in the taxation of Carried Interest (which was a major portion of his compensation) and estate taxation. As an added advantage, this second citizenship also gave their children and future generations the option to live, study and work anywhere in Europe.
- We also secured Canadian work permits for both our client and his wife. This would allow both of them to live and work in Canada. Their children would be able to accompany them and go to school. This was inexpensive, easy and fast to do. While the work permit gave them the right to live and work in Canada for the entire time of the renewable permit, it did not automatically make them tax resident in Canada. They would only become tax resident in Canada if or until they ever started to spend more than 6 months per year physically in Canada. They then purchased a condo in Toronto and started to rent it out through Airbnb. They also arranged a serviced shared office space with back-up computer services.
We then monitored their Back Up Plan on a regular basis and kept it up-to-date to ensure it would do its job if any of the potential catastrophic events happened … and of course one did!
A Back Up Plan in Action…
In August 2017 weather forecasts started to identify Houston as the highly-probable landfall location for a Category 4 Hurricane Harvey. My clients then put their Back Up Plan into effect:
- They cancelled future reservations for their condo on Airbnb and had it cleaned and stocked;
- The family flew to Toronto … and moved into the condo;
- They contacted a pre-selected private school and enrolled their children to start in September;
- He started to run his business – without any interruption – from his Canadian office
The net result was business and lifestyle continuity…and of course peace of mind.
Our client and his family have a few future options. They may either return to their previous lives in the US or sell their US home. They may then use the proceeds and the insurance monies to make their permanent home back in Canada or in Europe. As it is not necessary for tax planning that all family members renounce their US citizenship, one of the adults could choose this path and realise a significant reduction in the family’s global tax burden. Depending on where the family was going to live in the future, the appropriate tax planning would be undertaken to make sure that the family did not jump out of the US tax pot and into a foreign country’s tax fire.
What Happened Next?
After spending one school term in Canada, the family returned to Houston. The client then added New Zealand residence permits for his family to their Backup Plan. When the Covid pandemic hit, the client decided to renounce his US citizenship. He moved his entire family to New Zealand. With on-line classes and Zoom meetings suddenly the new normal, this move was seamless.
The Extended Benefits
The value of a Backup Plan was also appreciated by several of this client’s business partners. They engaged our firm and were then able to use their recently completed Backup Plans to escape the recent extreme cold in Texas.
What can we learn from the Texas Freeze and Hurricane Harvey?
The lesson to be learned is that financial and life-changing threats can come from a variety of sources. A well designed and maintained Backup Plan can be as valuable as Fire Insurance and a Fire Escape Plan when those natural and manmade threats materialise.