Member Article

Luxury assets: ensuring long-term value, protection and enjoyment

In a world of increasing private wealth and sophisticated family structuring, the ownership of luxury assets such as superyachts, artwork, aircrafts, jewellery, or classic cars is becoming more common.

For some clients these assets are owned purely as a lifestyle choice; who wouldn’t want to cruise the Mediterranean in a superyacht or enjoy the convenience of a private plane?

However, some clients see the long-term investment opportunities available in certain luxury asset classes and hold these assets to combine their passion with an element of diversification in part of their investment portfolios.

It is important that luxury assets are managed with the correct ownership rationale in mind, ensuring for example that the plane is available whenever needed whilst also bringing in revenue through chartering when not required for personal use.

Therefore, careful consideration needs to be given to the structure in which the asset will be held, and this will be driven by the client’s objectives; asset protection, succession planning, tax efficiency.

The design of the structure needs to take account of the client’s ongoing requirements and wishes as often, these conflict with the long-term objective of the structure.

An example of this would be where a client wishes to place an art collection into a trust to ensure the collection is kept together for the next generation but also wishes for the collection to be available for the enjoyment of the family or, indeed, to be lent to museums or galleries. Care must be taken in drafting the over-riding trust documentation to ensure that the objectives are not undermined, for example, by extensive use of reserved powers.

It is essential that a fiduciary and corporate services provider continues to build intimate relationships with international advisors and specialists to ensure that the most appropriate team is put together for each specific case and client. As an independent business this is something we pride ourselves on.

Whilst we have experience of dealing with all luxury asset types, we have chosen to focus on two particular types below – superyachts and artwork.

Superyachts

A superyacht is often associated with high-net-worth individuals and, in our experience, more frequently acquired for personal use, rather than its investment potential.

However, the purchase or sale of a superyacht, including the supporting finance, is often complex given the level of due diligence involved and difficulties around values, whilst the ongoing management can be onerous from an administrative perspective.

We have been involved with a number of bespoke holding structures for clients often involving trust and holding companies, in isolation from the client’s other affairs, in order to keep security and lending arrangements separate. There are a number of important management services to consider:

• Reviewing build contracts
• Ongoing management of building contractors
• Sourcing external finance
• Vessel registration
• Liaison with professional lawyers and advisors
• Corporate administration of the structure
• Facilitation of chartering
• Oversight of payroll services
• Mitigation of environmental impact

Artwork

Artwork has been a popular client passion and investment for many years. Whilst, as an investment it may not yield income in comparison to the charter of a superyacht or private aircraft, the capital appreciation can be significant, and the enjoyment during ownership is priceless.

Most noticeably it is often seen to form part of a family’s personality or identity, which must be preserved for future generations, long after the client’s death.

However, this is a specialist area with associated risks and complications; a quick “google” of the accusations made against art dealer, Yves Bouvier, provides a flavour of the potential scale of money and risks involved.

Long-term succession planning requires the appropriate tax-efficient structuring of ownership to ensure the asset is safeguarded for such future generations. Effective planning and custodianship will ultimately avoid loss of the asset through taxation, theft or even fraud.

The safeguarding of such an asset is relevant whether the artwork is held personally at the family home or alternatively forms part of a portfolio of artwork lent out to a gallery. If the latter, then careful consideration should be given in drafting the appropriate loan documentation to ensure this covers vital issues such as security, insurance, and reproduction rights.

The purchase or sale of artwork also requires due consideration, particularly in respect of an agreed valuation, whilst the ongoing management of the asset requires a “safe pair of hands”, taking into consideration bespoke services such as the following:

• Obtaining and managing insurance
• Obtaining suitable valuations
• Accounting and reporting
• Identifying markets trends
• Sourcing external finance

As with all high net worth planning, clients get to “sleep easy” in the comfort that competent advice has been received from experienced professionals. As an independent fiduciary and corporate services provider, we are in a position to provide exactly that, ensuring the service is tailored to the precise needs of each particular client and asset held.

This was posted in Bdaily's Members' News section by Simon Graham .