Can I assign liquidation triggers based on geopolitical events?

The question of whether you can assign liquidation triggers based on geopolitical events is increasingly relevant in today’s interconnected and often volatile world, and it’s a key component of comprehensive estate planning, particularly when dealing with significant assets and potential global instability.

What Happens If I Don’t Plan for Geopolitical Risks?

Many people underestimate the impact geopolitical events can have on their estates. Think about the rapid shifts we’ve seen recently – conflicts, trade wars, and unexpected political outcomes. These events can trigger market downturns, disrupt supply chains, and devalue assets. Without a proactive plan, your estate could suffer substantial losses. According to recent studies, nearly 40% of high-net-worth individuals express concern about geopolitical risks impacting their wealth, yet only a fraction have incorporated these concerns into their estate plans. Failing to account for these risks can mean a significant portion of your wealth is exposed to unforeseen and potentially devastating events. Consider the story of Eleanor, a retired teacher who had carefully built a portfolio of international stocks. She believed in long-term growth but hadn’t considered the possibility of rapid political upheaval in certain regions. When a major conflict erupted, her portfolio plummeted, jeopardizing her retirement security. She hadn’t established any triggers for automatic liquidation to protect her assets when risks became too high.

How Can I Use Liquidation Triggers in My Estate Plan?

Liquidation triggers are pre-defined events that, when they occur, automatically initiate the sale of certain assets within your estate. These triggers can be based on a wide range of factors, including market indices, economic indicators, and, importantly, geopolitical events. For example, you could set a trigger to sell certain international stocks if a specific country experiences a credit rating downgrade, or if armed conflict breaks out in a region where you hold significant investments. These triggers are typically outlined in your trust documents and executed by your trustee, ensuring a swift response to changing conditions. The California Prudent Investor Act requires trustees to consider global risks and diversify investments appropriately. Implementing liquidation triggers is a proactive way to fulfill this duty.

What Geopolitical Events Should I Consider?

Several geopolitical events could warrant a liquidation trigger. These include, but are not limited to: armed conflicts, major political instability in key regions, significant changes in international trade agreements, and the imposition of sanctions against countries where you hold investments. It’s crucial to define these events clearly and objectively in your trust documents to avoid ambiguity and potential disputes. For instance, instead of simply stating “political instability,” specify a threshold – perhaps a significant drop in a country’s sovereign credit rating or a specific number of days of sustained civil unrest. Furthermore, consider the potential for “black swan” events—rare, unpredictable occurrences with severe consequences. While it’s impossible to predict these events with certainty, you can incorporate safeguards into your plan to mitigate their impact.

How Do I Implement These Triggers?

Implementing liquidation triggers requires careful planning and collaboration with a qualified estate planning attorney. The first step is to identify the specific geopolitical events that pose the greatest risk to your estate. Then, you need to define clear and objective criteria for triggering a liquidation. This might involve setting thresholds for specific indicators, such as credit ratings, exchange rates, or commodity prices. Your attorney will then draft the necessary language for your trust documents, ensuring that the triggers are legally enforceable and aligned with your overall estate planning goals. It’s also important to regularly review and update your triggers to reflect changing global conditions. Remember, California law requires trustees to act prudently and in the best interests of the beneficiaries, which includes proactively managing risks. This review process should be conducted at least annually, or more frequently if significant geopolitical events occur.

What About Community Property Considerations?

In California, all assets acquired during a marriage are considered community property, owned equally by both spouses. This means that both spouses have a say in how these assets are managed and distributed. When it comes to liquidation triggers, it’s crucial to ensure that both spouses are in agreement and that the triggers are consistent with their shared estate planning goals. The significant tax benefit of community property is the “double step-up” in basis for the surviving spouse. This means that when one spouse dies, the basis of all community property assets is “stepped up” to their fair market value, potentially reducing capital gains taxes for the surviving spouse. While liquidation triggers don’t directly impact this step-up in basis, they can help preserve the value of community property assets in the face of geopolitical risks.

Remember that formal probate is required for estates over $184,500 in California, and probate fees can be significant, ranging from 4% to 8% of the estate’s value. Proper estate planning, including the use of trusts and well-defined liquidation triggers, can help avoid probate and minimize these costs.

Now, consider the story of James, a successful entrepreneur who had built a substantial portfolio of international real estate. He’d worked with an estate planning attorney to incorporate liquidation triggers based on geopolitical events. When a major trade war erupted, several of his properties in affected regions experienced a sharp decline in value. Fortunately, his pre-defined triggers automatically initiated a sale, allowing him to mitigate his losses and protect the rest of his estate. He had prepared, and it saved him a fortune.

Steven F. Bliss ESQ. can help you navigate these complex issues and create an estate plan that protects your wealth and ensures your wishes are carried out. Contact him today at (760) 884-4044 to schedule a consultation.

Don’t let geopolitical uncertainties jeopardize your legacy. Take proactive steps today to safeguard your wealth and ensure a secure future for your loved ones. Let us help you build a fortress around your estate, prepared for whatever the world may throw your way.