Wealth Management

In a nutshell

Wealth management

Private wealth lawyers advise wealthy families, individuals, trustees and fiduciaries on all aspects of estate planning, including asset management, tax planning, wills and trusts, charitable contributions and various types of estate litigation. Matters can be purely domestic or have an international element if, for example, a family has non-US resident members, is seeking asylum in the country, or has invested wealth overseas.

A great deal of private wealth work is tax-based, especially with regards to income and estate tax. However, specialists in this area also need to ensure their corporate tax knowledge is up to date, as it's not unusual for their family clients to have multimillion-dollar businesses to their names. As Carol Harrington of McDermott Will & Emery highlights: “In addition to the original family business, one client owns casinos, two major league sports teams and a charitable foundation – that's a similar situation for a lot of clients.”

Compliance is another important aspect of wealth management. Lawyers need to cultivate a lot of regulatory knowledge in order to advise their clients, who may have multiple requirements as shareholders of corporate entities, trustees of charitable foundations, charitable donors and recipients of trusts.

What lawyers do

  • Structure assets to create tax-efficient structures for private individuals seeking to transfer assets to family members or executives of estates.
  • Draft wills, trusts and estate documents.
  • Regularly meet with clients.
  • Aid families and wealthy individuals with their personal tax liabilities and solutions.
  • Establish and structure charitable organizations, as well as charitable endowments and funds.
  • Provide families with multi-jurisdictional advice pertaining to their international estates.
  • Liaise with private wealth lawyers around the world.
  • Represent trustees in litigation regarding their conduct when handling an estate.
  • Communicate and discuss strategy within a team.

 

Realities of the job

  • Basil Zirinis, a leading wealth management partner at Sullivan & Cromwell, says: “Our practice is a mix of drafting, meeting, advising and researching.”
  • Wealth management tends to offer young lawyers more direct client contact than they'd typically get in a larger corporate or litigation department. “If you're a strong associate and you show drive, there is always the opportunity to be very involved with families face-to-face,” says Zirinis.
  • Building relationships with clients is an important part of the job, as Carlyn McCaffrey of McDermott Will & Emery explains: “Many private client attorneys end up with hundreds of clients over their careers. They don't work for them all at the same time, but they don't finish with a client either. Estate planning is a lifetime enterprise. If you had a client 20 years ago that you did good work for, chances are you're still working with them today.”
  • Harrington also drives home the importance of empathy and client-care skills. “These are real life people-problems; sometimes kids aren't financially responsible, for instance, and sometimes families don't get on.” She adds: “There's a crisis every minute and each client wants to be the only client you have. Any one of my clients could call me with something crucial to them; their dad's had a heart attack, so what do they do?”
  • Research forms a large part of the role. “We're fortunate enough to have a practice where the questions are unusual and complex, and there are often no clear answers,” Zirinis notes. “We add value where the answer is unsettled, so the associates are doing research, but it's creative research. This makes it more challenging and more interesting.”
  • Attention to detail is vital, especially when structuring assets for high net worth individuals (HNWIs). “It's important that you understand the law; it's technical, complex and it can get pretty complicated,” Harrington points out.
  • Private wealth lawyers tend to juggle several matters at once. “This element is a challenge, but at the same time it's a high point. There's so much variety and you never see the same thing over and over again. It's thrilling, exciting and fresh,” Zirinis enthuses.
  • An interest in tax and a good feel for numbers is a must. McCaffrey says: “The ability to deal with numbers is important. You don't have to be a math wizard, but you can't be afraid of spreadsheets.” Often clients will have business interests that need to be factored in, but the more complex sums are usually sent to the firm's corporate tax teams to figure out.

 

Current issues

May 2021

  • Wealth management has always been a client-focused area and therefore has always required a ‘human’ element to advice. However, with the Covid-19 pandemic, the importance of digital capabilities came to the forefront. As such, this emphasis shifted slightly – law firms aimed to retain some of the ‘human’ element, but are combining it with more digital elements to create a new hybrid form of human/digital advice: the aim of all this being to help with efficiency and ease of experience, while retaining quality. Clients are also looking for more ‘holistic’ advice, requiring lawyers and wealth management firms to serve a wider range of client needs.
  • “The global nature of wealth certainly has an impact on the practice,” says Amy Heller of Skadden. “It's increasingly common for wealthy families to have family members and assets in multiple jurisdictions, so it's important to have – at the very least – an awareness of other countries' laws and a sensitivity to other cultures.” 
  • In a 2019 article by Berkeley economist Gabriel Zucman, a summary of current research showed that the top 1% of families in the US owns 40% of the total household wealth – signaling levels of wealth inequality not witnessed since the Great Depression. It also means the US is the second worst country in the world for wealth inequality, behind Russia. On a global level, a 2019 Oxfam report (which some economists challenged) found that the wealthiest 26 people had the same net worth as that of the bottom 50% of the world's population. All of this, Carol Harrington believes, means that “there is a lot of work to do. In the next ten to 20 years there is going to be the greatest transfer of wealth in the history of the world.”
  • Sustainable investing has been on the rise over the last few years – according to a report by Capgemini, the value of global assets applying ESG (environmental social and governance) data on investment returns reached a new peak of $40.5 trillion in 2020, almost double the 2016 figure. The report also acknowledged that the pandemic played a role in increasing interest in sustainable investment products, as investors felt them to be more risk-averse investments in turbulent times.
  • The World Wealth Report 2020 highlights that 27% of high-net worth individuals had expressed interest in sustainable investing, with an even higher 49% of younger high-net worth individuals expressing interest. This will be key when considering the coming ‘wealth transfer’.
  • Over the next 25 years, there will be a generational shift: high net worth individuals will pass over their money to younger heirs. This new generation will change the shape of wealth management, especially with regards to the use of digital technology. Artificial intelligence will also play a role: in theory, AI will be able to speed up the ‘know your customer’ and onboarding processes for firms. Indeed, we are already seeing an increase in the use of AI-led advice platforms. 
  • Privacy has always been paramount in this area, but its importance has been enhanced by the current climate. In 2017 the 'Paradise Papers' leak revealed details of massive offshore trusts held by the world's wealthiest individuals. Said details prompted a host of difficult questions for the rich and famous, among them American billionaire James Simons, who privately transferred $7 billion to Bermuda for tax purposes. The leak sparked widespread debate on tax havens and the ethics of tax evasion (illegal) versus tax avoidance (legal), which continues to this day. 
  • The Tax Cuts and Jobs Act of 2017 cut the corporate tax rate from 35% to 21%. It also served to benefit higher-income families thanks to the estate tax threshold being more than doubled: as of 2019 tax now need only be paid on estates worth more than $11.4 million. However, with the change in administration in 2021, both President Biden and other policymakers have suggested increasing corporate tax to 28%, which would grow revenue for new programs, but would also make the USA more expensive to invest into.  
  • According to the Financial Secrecy Index 2018, the US is second only to Switzerland when it comes to the secrecy and scale of offshore finances. Compiled by the Tax Justice Network, the US has a 4.09% FSI share, more than twice the share of Panama.