Dan Dobry
Dan Dobry

Case Study: British Elderly Retired Immigrant to Israel

Comprehensive financial planning is best described as the process of creating strategies to meet life goals.

In this article, I will show you the process of implementing the methodology with a British female citizen.

First of all, we need to take into account that comprehensive financial planning has 6 basic components. They are: 

  1. Financial Management 
  2. Asset Management 
  3. Risk Management 
  4. Tax Planning
  5. Retirement Planning or creating Passive Income. 
  6. Estate Planning 

Each component of a plan can be researched separately, but in reality, these components are inextricably connected. Thus, our recommendations always consider that fact, which differentiates the work we do from most financial advisors. 

The case: British female citizen, a widow, 81 years old immigrating to Israel. She has an unspecified amount of money in the UK. She wants to take the money out of UK for taxation reasons.  

She had 4 children, 8 grandchildren, and 2 great-grandchildren. 

Financial Management and passive income planning 

The purpose of financial management is to identify strategies and techniques to optimize short and midterm cash flows, assets, and liabilities. The components of comprehensive financial planning cannot be dealt with in isolation from the other components. 

The process: creating an asset and liability study, income and expenses, cash flow, and understanding life goals, passive incomes, and net worth. 

Personnel Issues to discuss 

  1. She needs to define in more detail how much money she wants to transfer, and where it currently is invested? Is it in cash? Portfolio? Illiquid assets? Pension Fund? 
  2. What does she ultimately wish to do with the monies? What are her needs? Does she want to transfer the monies to the next generation? Who are her beneficiaries? Do they reside in Israel? Does anyone in her family have US citizenship? 
  3. What are her income sources? Does she get a pension? Income from real estate that she owns. Where? Government State pension? What are her expenses? Does she make enough to cover this, or does she eat into her assets? 
  4. What illiquid assets does she own in the UK? Does she own a home? What is she doing with it? 
  5. Is anyone else involved in decision-making? Is she receiving Legal advice? Advice from children? People she trusts? Does she want or need someone to be involved in the decision-making? 

Asset Management 

An investment management strategy provides the framework for investment decisions. It ensures that the decision-making process concerning the management of a portfolio will be consistent, even when unexpected market fluctuations tempt distraction from long-term strategy. Investment recommendations will always be made in concert with the guidelines agreed upon. The development of an effective investment management strategy is imperative the essential foundation upon the plan.

Risk Management

Doing comprehensive financial planning dictates that it is important to: 

Identify the risks that could threaten financial security. 

Quantify the risks. 

Determine if there is some way to mitigate the risks through planning. 

Try to transfer the remaining risks that the client is unable or unwilling to assume. 

Personnel Issues to discuss 

    1. Exposure to currency risk: making a decision to move to Israel, means her expenditures from now on will be in the local currency Shekel, while in the past she lived with GBP. Hence, keeping assets in GBP and living in Israel, would expose her to the fluctuation of currencies.
    2. Risk Capacity: the question I ask here is can you afford risk exposure? What will happen if in the next crisis the market takes a downturn of 30% – 40% and does not recover in a year. Can you afford a market drop as long as the market will rebound?
    3. Need for Risk: the question to ask here is what is your need for risk exposure.
      • Attitude to risk: the question we ask here is you willing to take risks and do you understand the implications

Tax Planning 

The principles of tax planning form an integral part of any wealth-building strategy. The overall objective is to structure affairs to legally minimize the amount of tax you must pay. You can accomplish this by adhering to what we call the 4D’s of taxation: deduct, defer, diminish, and divide. 

  1. Deduct – maximize all tax deductions and credits. 
  2. Defer – defer paying tax if possible. A tax dollar deferred is often a dollar saved. 
  3. Diminish – position investments in investment vehicles, which attract the least amount of tax, having full regard for your risk tolerance and asset allocation strategy. 
  4. Divide – split income among family members to the maximum degree possible while considering other personal objectives. 

Personnel issues 

  1. In the UK the assets are libel for estate tax so anything over app 330K GBP would be taxed at a rate of 40% so probably that is the reason she wants to transfer the assets to a tax neutral jurisdiction.  
  2. The 10-year tax break for Olim is only on income that is created outside of Israel so if she brings the assets to Israel she will be taxed on growth as an Israeli in Israel and there are no more tax advantages for the transfer of assets to the new jurisdiction
  3. Creating a self-managed investment policy overseas in a tax-neutral jurisdiction (Bermuda, Gibraltar, BVI for example). In this scenario, all gains should be tax-exempt, and all income brought to Israel will be tax-exempt.
  4. The policy could be held directly or through a trust that defines what happens after her demise.  She can look after her children’s best interest and define any terms for the transfer of money (including protecting them from themselves or from spouses or creditors). She can define benefits for multiple generations and multiple goals. 
  5. The Policy will not be liable for inheritance tax in the UK. 
  6. In the case that the policy is held directly, the transfer of assets from generation to generation could be transferred tax-free and the beneficiaries can continue to utilize the offshore structure for themselves or alternatively “cash in” as the structure is completely liquid. 

Estate Planning 

The purpose of Estate Planning is to plan for the effective enjoyment, ownership, management, and disposition of assets during life, upon death, and after death. Fundamental also to the process is to maximize the estate for heirs while minimizing taxes and other expenses. Thus, Estate Planning is the creation of wealth, the preservation of wealth, and the conservation of wealth at the time of death. 

Like any planning, the process of creating an Estate Plan includes the following steps: 

  • Identifying estate planning objectives 
  • Gathering information about the current situation 
  • Analyzing  the current situation 
  • Documenting an appropriate strategy and the eventual outcome of that strategy 
  • Identifying Action Steps required to implement the strategy 
  • Make decisions for action 

The implementation of an estate planning strategy is achieved using a variety of devices. The fundamentals of estate planning are the execution of a will and powers of attorney (for property and personal care). 

Before a strategy becomes effective, the appropriate legal documents must be executed. Lack of careful planning or faulty execution of legal documents can alter or even invalidate the intentions of a well-thought-out strategy. 

Personnel issues 

Does she have a will in the UK? Living will?  Does she own any trusts?  PoA in the UK. These will not necessarily be valid in Israel. 

PoA in case of inability to make decisions: has she defined this? Who will make decisions for her? 

Possible solutions 

Will, Living will, PoA, or trust: she must define her needs and give exact detailed orders on what should be done with the assets in each jurisdiction. If the assets are held directly, we need to be sure that the beneficiaries are updated in the policy or there is a copy of a local will (as the probate will be in each individual country).

About the Author
Dan Dobry was the founder of the Union of Financial Planners in Israel (UFPI), served as the first Chairman and President of UFPI. Dan was the Global Council Representative for Israel for the Global Community (FPSB) from 2012 - 2018 and from January 2019 is a member of the Committee for Standards and Qualifications for the European Union (SQC).
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