Wealth management for senior executives

The four pillars of wealth management for senior executives

1. Optimising and diversifying complex remuneration

The remuneration of a senior executive is not limited to salary. It generally combines a fixed portion, a variable portion indexed to performance, exceptional bonuses and, very often, an equity component : stock options, free share awards (AGA), subscription warrants (BSPCE, BSA) or management package instruments. Each of these components is governed by its own tax and social security rules, and by its own vesting and transfer timetable.

The first task is to map this remuneration precisely in order to anticipate its flows and its deadlines. When should the options be exercised ? Should free shares be retained or transferred at the end of the holding period ? How can the taxation of capital gains be smoothed over time ? Multi-year planning makes it possible to avoid peaks of taxation and to secure personal cash flow.

Diversification is the second imperative. An executive naturally has an overwhelming share of his or her wealth tied to a single company : his or her employer. This concentration creates a major risk, since the same source finances income, savings and capital appreciation alike. Progressively reinvesting part of the liquidity released into uncorrelated assets (real estate, diversified financial markets, private equity, unlisted assets) reduces this dependence.

Finally, the wrapper matters as much as the underlying asset. Life insurance, capitalisation contract, retirement savings plan (PER), PEA or holding through a wealth-holding company : the choice of wrapper determines the taxation of income, management flexibility and the conditions of transmission. A considered arbitrage between these vehicles is often more value-creating than the selection of investments alone.

2. Protecting the executive, his or her family and his or her wealth

The senior executive bears a high level of personal exposure : liability under the corporate office, guarantee undertakings, non-competition clauses, career uncertainties. Protecting wealth therefore begins with a clear legal separation between business assets and private assets, with a suitable matrimonial property regime and with personal risk cover commensurate with actual income (incapacity, disability, death), the compulsory schemes being capped very quickly.

Protection also extends to family members. In the event of death or incapacity, the family must be able to maintain its standard of living and to manage wealth that may be illiquid or complex. The designation of Beneficiaries, the organisation of family governance and the implementation of mechanisms securing capital prevent vulnerable relatives from finding themselves without resources or exposed to conflict.

3. Anticipating taxation and exposure to the IFI

With high income, the senior executive most often falls within the top marginal brackets of income tax, to which social levies are added and, where he or she holds significant real estate wealth, the real estate wealth tax (IFI). The net performance of a person’s wealth is largely determined in the tax arena.

The levers are numerous and must be combined : use of the PER to deduct from the taxable base, arbitrage between dividends and remuneration where the executive is also a shareholder, use of a wealth holding company to capitalise and reinvest under tax deferral (apport-cession, parent-subsidiary regime), management of the capital gains timetable, or optimisation of the way real estate is held. Any strategy must nonetheless remain guided by a genuine wealth rationale, never by the tax advantage alone.

4. Preparing the transmission and transfer of the business

For many executives, the major wealth event remains the transfer of the business or its transmission to the children. Properly prepared, a transmission may benefit from powerful mechanisms such as the Pacte Dutreil, which allows, subject to holding undertakings, an exemption of 75 % of the value of the shares transmitted. Poorly anticipated, it may on the contrary give rise to confiscatory taxation and to lasting family tensions.

The progressive gifting of shares, contribution to a holding company before transfer, the splitting of ownership between usufruct and bare ownership, or the donation-partage are all tools to be orchestrated several years in advance. The issue is not only a tax one : it is a matter of organising future governance, of treating heirs in differing situations equitably and of preserving the unity of the family estate.

It is precisely at this stage, as in the protection of vulnerable family members, that a complementary tool deserves the attention of executives : the fiducie, the French-law fiducie.