Wealth in Transition. US Trends for 2022

Date: 22 Feb 2022

Citywealth

With financial analysts trying to predict what 2022 will look like globally, Citywealth placed a magnifying glass on the United States, talking about its wealth trends. The wealth management world is entering a period shaped by rapid transformation and renewed uncertainty. From the rise of digital assets to shifting tax landscapes and the lingering effects of the pandemic, the forces reshaping the sector are as varied as they are profound. Citywealth examines the United States through the lens of leading legal and financial minds who are navigating this moment in real time. Their insights reveal a market that is adapting with resilience, embracing innovation, and preparing for a future where change is the only constant.

A Sector Shaped by Uncertainty

The way wealth managers do business is correlated with all the changes and challenges they face in the modern era, including the unexpected ones brought on by the pandemic. With financial analysts trying to predict what 2022 will look like globally, Citywealth placed a magnifying glass on the United States. We wanted to understand from experts in the legal marketplace the service offerings which have the potential to become cornerstones of the US wealth management business: we heard about SPACs, digital and non-digital trends, crypto-investments and data privacy.

There is nothing permanent except change

“Most financial analysts are predicting a tumultuous year for wealth management in the US. I would expect the legal work to follow suit. It should make SPACs (a special purpose acquisition company which is designed to take companies public without going through the traditional IPO process) increasingly attractive but staying private will also likely increase in popularity”, states Joshua Rubenstein, who chairs Katten’s national and international Private Wealth Department from New York.

The SPAC Surge and Its Legal Implications

2020 has been a record year for SPACs according toThe Wall Street Journal as the SPAC phenomenon has rapidly increased in popularity. “SPACs have been a hot topic for the past couple of years”, confirms Stephanie Moll Kriegel, Partner at Harrison, “Many US clients have also been making gifts of their business interests, either in trust or outright, prior to the closing of the SPAC transaction, wanting to transfer wealth to their beneficiaries before the (hopefully) increasing value of their interests after they become publicly traded.” Stephanie provides legal advice to ultra-high-net-worth individuals and international families in estate planning and United States estate, gift, and income tax advice. Her expertise in the sector brings Stephanie to pose the questions entrepreneurs need to think about before a SPAC, “the uncertainty of a SPAC transaction and when it will close; whether the US will make any future regulatory changes to this structure that may affect SPAC transactions, and any potential ‘lockdown’ period after the SPAC closing which may affect when the client can sell their publicly traded shares.” She also adds “these factors all contribute to enough uncertainty in value, prior to the closing, to look at making gifts of assets.”

Digital Assets Move Centre Stage

“The digital asset world is front and centre”, says Jennifer J. Wioncek, head of Bilzin Sumberg‘s Tax and Wealth Planning Group. “While there is an investment component, particularly with cryptocurrency, I think there is an educational element that still needs to be addressed for many individuals and clients.” As digital assets become more predominant, learning how to efficiently deal with them is also crucial. Jennifer outlines: “My firm has launched an insights and resources web page focused on Emergent Legal Issues in the Tech Industry, with much of its content devoted to highlighting the developments in the digital assets space, and we increasingly have team members who have been advising clients on these matters.”

Regulation in Flux

Digital changes are always around the corner and cannot be ignored. “We expect more continued movement in the digital currency arena. Cryptocurrencies and crypto investing have been around for years, but 2021 and 2022 have witnessed increased regulatory scrutiny as the popularity and price of all things crypto, and digital assets, has skyrocketed”, points out Jennifer, who outlines that “the Internal Revenue Service, the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation are all studying how to treat the holding, sale, purchase, and transferring of crypto and other digital assets. While regulation of cryptocurrencies is still very much in flux, a large part of our conversations with clients and peers will be on the best way to incorporate tax structuring and estate planning advice for crypto-investments.”

“In the legal marketplace, it will be important for us to stay on top of rapidly evolving developments, and to help our clients determine which developments have legs, and which are more likely passing fancies”, says Joshua, who adds, “we are watching ESG/sustainability and crypto closely, both in terms of planning with them for our high-net-worth individual clients, and dealing with them prudently for our corporate fiduciary clients.”

As well as digital, data privacy and security continue to be burning issues. “In the same vein – continues Jennifer – we would expect that our industry will be equally focused on strengthening data privacy and security measures to protect against data security breaches and other leaks in wealth management.”

Tax Planning Under Pressure

“For the past two years, US clients have been racing against the clock to make lifetime gifts prior to any change in the lifetime gift and generation-skipping transfer tax exemptions”, mentions Stephanie, who deals with US and UK trust and tax law. “With the current situation in Washington D.C., changes that seemed imminent in early and late 2021 now seem less likely to occur in 2022. However, the exemptions are already slated to automatically sunset on January 1st, 2026, so, while the immediate urgency has declined, savvy clients are still making plans to use their exemptions (currently $12,060,000 in 2022, reduced by any lifetime use) before any change.”

Migration and the Florida Effect

Considering the implications of migration and the impact that it has on tax planning, Jennifer, who advises high-net-worth cross-border individuals and families on their tax and succession planning needs, highlights that “Florida is a hot market. Miami – where Jennifer’s practice is based – is experiencing new and unprecedented levels and patterns of migration not only from other parts of the United States but also from around the world. Some of this migration is concentrated in the state’s primary markets. South Florida, for example, has been witnessing the steadily increasing expansion and relocation of wealthy families, entrepreneurs, and companies. The concentration has resulted in significant opportunities for tax planning, business structuring, and real estate development and just generally a significant investment to the South Florida community and its advisors. We don’t know how long this trend will last, but we find ourselves in a fortunate position.”

Younger Generations Rethink Estate Planning

And regarding succession planning, Jennifer says she is still witnessing “an increase in earlier age groups asking about estate planning. The experience with the pandemic has caused individuals to focus on their planning sooner rather than later, where younger clients with a moderate size of wealth want to make sure that their affairs are in order should they pass away unexpectedly.”

Living with Constant Change

Joshua, who is currently working on a cross-jurisdictional restructuring to address actual and anticipated possible tax and political change, and intra-family disputes, finishes by saying that “the two biggest trends are the rapidity and increasingly unpredictable nature of global change in all areas, and the increasing amount of contentiousness in the private wealth field, making it reasonable to assume that everything we do will be analysed at some point with a view towards a possible challenge.”

Despite the past turmoil, our experts believe 2022 will mean more adaption to digital and regulatory changes for the wealth management industry. However, there is also opportunity and that is something Socrates commented on: “The secret of change is to focus all of your energy not on fighting the old, but on building the new”, something the US is particularly good at doing.