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Why is tidy a key word in financial planning? Published May 2016

Over the course of this year I shall produce number of useful articles on the key principles of financial planning.

Let’s start with the most sensitive area.  Dying or, otherwise, estate planning, and take what you feel are some of the more useful aspects and maybe even pass some of these onto your family members. 

The overall objective in estate planning is to “die tidily”.  This may involve tax planning, but it goes much further, particularly when having to look at your country of domicile and your country of permanent residence.  For many readers you will have to plan around a main Portuguese residence which already determines where you should be paying tax year-on-year.  But for the long term more permanent resident, your domicile or national law must also be acknowledged and planning naturally must bear in mind a much wider scope. 
Imagine how much more complicated it becomes when adding more than one jurisdiction.  To really make any plan “airtight”, it is imperative that you let a legal professional deal in their sphere of expertise and the financial professional within theirs, and yet again within each jurisdiction.

Wills

Many individuals do not make a Will and, even if they do, they do not necessarily keep it updated.  A Will should normally be reviewed at least once every two years, and particularly after any changes to either your personal circumstances or in the legislation. 

It is imperative if you are dealing with this yourself in Portugal that you understand the language and follow the steps laid out by a legal notary and the impact of a Portuguese Will on both national and international assets in light of your domicile or nationality. 

You or your adviser must also be up-to-date with any estate planning matters.  For example, a very recent European directive known as Brussels IV permits a Portuguese permanent resident to utilise their residence as their domicile/national law when adjudicating how their estate is to be distributed.  For many foreign nationals facing this as an option must weigh up whether the upside of any tax efficiencies to the downside of Portuguese forced heirship rules.

Powers of Attorney

At the same time as making a will, it is wise to establish a power of attorney.  While there can be a plus side in “living for longer” these days, longevity exposes us all to the likelihood of mental and physical challenges life cruelly throws at us.  It is also not just for seniors since incapacity as a result of accident or rare illness can happen at any age.  Coping with the financial affairs and health matters of the incapacitated can be emotionally exhausting and organising such a power, particularly when there is a history of mental incapacity in the family, is simply good financial planning.
The selection of an attorney or attorneys warrants as much care as the choice of executors of a Will.  The decision should only be made after discussions with the proposed attorney and the appointment of a spouse as the sole attorney should be treated with caution.  You must also consider the fundamental differences between dealing with matters financial from bank accounts or investments to paying bill and also all matters in relation to the donor’s healthcare and welfare.

Other Points

Without a valid Will in place your estate will fall under intestacy rules of both your country of residence and your country of domicile/national law.  This will involve the State and Court procedures so the Will is a more effective way to ensure your wishes will be adhered to once you have passed away and not for the Courts to do that for you.  Indeed, where families have a more complicated past (for example, where there has been more than one marriage and/or more than one heir with other spouses/partners), without leaving bonafide and clear legal instruction estates can turn into dust overnight through endless claims and disputes.

Trusts, other corporate structures and gifting are also more effective ways to ensure your estate is settled more promptly and cost-effectively.  With the added international dimensions and the recent laws that attack the use of fiduciary structures in Portugal, ideal holistic advice must consider the impact of both current and future changes to legislation that may affect both your welfare and your financial affairs. 

No single adviser can be sure of what may lie ahead but experience and an understanding how to administer your estate within the legal guidelines must go hand-in-hand with thorough and complete financial planning.

This article is intended to provide a general review of certain topics and its purpose is to inform but NOT to recommend or support any specific investments or course of action.  Taxation depends on individual circumstances as well as tax law and tax authority practice which can change.

Raoul has a weekly radio feature (Raoul’s Rant) on the Owen Gee Solid Gold Sunday morning show on KissFM Algarve.

Why is tide a key word in financial planning?