A key to risk management in business is an exhaustive set of plans for dealing with " what ifs.”

Napoleon Bonaparte was known for his meticulous planning. He often considered multiple scenarios and adapted quickly to changing situations. His contingency plans ensured survival even when facing seemingly insurmountable odds. His strategies frequently included rapid maneuvers, decisive attacks, and exploiting enemy weaknesses to secure victory or to retreat strategically when necessary.

But what if the issue is not a business plan but a survival plan for your family's health and wealth?

Drawing Inspiration from Wisdom: The Philosophical Foundation of the Backup Plan

You might be familiar with Nelson Mandela's statement that “The true character of a society is revealed in how it treats its children.”

You might also be familiar with the quote attributed to Mark Twain: “History doesn’t repeat itself, but it often rhymes.” In other words, when looking to apply lessons from the past to events of the day, don’t look for exactly the same details…look for similarities.

So, what do these quotes by Nelson Mandela and Mark Twain have to do with your planning? As a family, you need to organize your lives—and those of your children and grandchildren—so that they have the protection of “Fire Insurance” in the form of second residences and citizenships as part of their “Fire Escape Plan” to protect their family’s wealth and well-being.

A Venezuelan Family’s Backup Plan

About twenty years ago, one of my clients encountered a real-life situation in a South American country that now resonates halfway around the world in Asia.

Venezuela is home to both the largest oil reserves in the world and successive anti-democratic authoritarian populist dictators. About twenty years ago, a Venezuelan client’s family had their passports stolen in Paris while on vacation. When they went to the Venezuelan Embassy to obtain replacement passports, they were informed that their children would only receive a travel document permitting them to return directly to Venezuela.

The parents remembered a recent television diatribe by then-President Hugo Chavez regarding how children were the property of the state and should be taken from the homes of their capitalist parents to be educated in socialist state schools. These were chilling words… and understandably, the parents did not want to discover whether this would happen to their children.

Instead, they hired our firm to design and build a comprehensive Backup Plan for the entire family that included second passports, residence status, and the establishment of foreign bank accounts. They then resolved never to take their children back to Venezuela until a legitimately democratic government was in office. Twenty-plus years later, they have still not returned. With their Backup Plan, they have created a life for the whole family in North America and Europe.

Navigating Sovereign Risk: The Vital Role of Backup Plans in Today’s World

Today, the threat of this form of “sovereign risk” continues to exist in several countries. There is a lengthy history of this concern in China, so much so that there is actually a famous Chinese curse: “May you come to the attention of the Emperor." I’ve previously written several blogs describing the reasons why Chinese families are leaving both China and Hong Kong, where I concluded that the key to a successful departure and relocation is a Backup Plan that has been properly “stress tested."

One important element of a successful Backup Plan for Chinese nationals is that it is often critical for the whole family to leave…and not return. This is because the Chinese government can and does impose “exit bans” on innocent family members, including children. These exit bans are used as leverage over those who have previously left China… and it doesn’t matter what other citizenships those family members possess. In fact, the Chinese government also uses exit bans in negotiations with foreign countries to resolve unrelated disputes.

Along with exit bans, the Chinese government is paying particular attention to individuals who request the legalization of certain documents, such as marriage or birth certificates, which they know are needed to obtain foreign residence and citizenship status. There are also reports that Chinese nationals returning to or departing from China have had their luggage searched, and any discovered foreign residence or citizenship documentation seized and destroyed. Moreover, there are numerous confirmed reports of the Chinese government operating “police stations” in Western countries, whose mandate is to monitor Chinese nationals living in those countries. Their actions have included attempting to coerce those nationals to return to China.

A recent engagement underscored the importance of stress-testing a backup plan. In this case, the Chinese client and their family had already secured residence status in a Western country and moved there. However, they did not appreciate the importance of also obtaining second citizenship and passports for all family members. They failed to realize that if the Chinese government unilaterally canceled their Chinese passports, they would not only lack the necessary documentation to eventually become naturalized in their new country, but they would also be unable to renew their residence permits.

A major potential stumbling block for this family in obtaining a second passport was that the parents were high-profile businesspeople. Consequently, the family did not want to approach the Chinese government to request the legalization of any of their documentation, such as birth and marriage certificates. Fortunately, we were able to negotiate personally with officials of a country to accept their existing but outdated legalized documentation in order to secure their new citizenships and passports. This step proved to be quite prescient, as just half a year later, they were informed that the Chinese government had declined to renew one family member’s expired passport unless he returned to China.

Lessons from the Past: How Backup Plans Shield Families Against Government Actions

These stories remind me of a memorable discussion I had with one of my first Chinese clients in the early 1990s. His family was from Shanghai, China's long-time home of international commerce. I will never forget what he told me:

“My ancestors lived through various Emperors, the Taiping, the Boxers, the Japanese, Chiang Kai-shek, Mao Zedong, and now the pro-business policies of Deng Xiaoping. The family motto is ‘No matter how good things are….always keep a fast junk in the harbour, with some gold bars, a second set of papers and permission to put into a friendly port’ ”

In modern terms, this translates to leaving before trouble arrives with a second passport, international bank accounts, and the right to live in a country that will protect your family from the dangers that your country of birth may someday pose to them.

Reconnecting with Family Heritage for Future Generations

Families can reconnect with their family heritage to benefit future generations and achieve deep personal rewards for themselves. The US, Canada, and the rest of the Americas are countries overwhelmingly comprised of immigrants and their descendants. When preparing backup plans for our clients, we always ask questions about their family lineage going back multiple generations. As a result, we are often able to include an application for lineage citizenship in our suggested strategy.

The rules for who qualifies for lineage citizenship vary by country and sometimes produce unexpected results. For example, we aided a Catholic Mexican HNW family in applying for Portuguese citizenship after genealogical research revealed that they descended from Sephardic Jews who had been expelled from Portugal centuries ago. Additionally, there are special programs in Germany and Austria for the descendants of those killed or forced to flee those countries due to Nazi governments. Depending on family history and country, we have been able to secure lineage citizenships based on ancestors born in the 1800s.

In addition to providing fire insurance against potential adverse events, acquiring citizenship in an EU member state also offers our clients and their future generations the opportunity to retire, work, or study abroad. It is important to remember that due to EU law, these benefits are not limited to the country of their ancestors, but extend to all 29 member states of the EU and EEC. Furthermore, their spouses also have the right to reside in these countries.

Fire Insurance against populist “Tax the Rich” proposals becoming law

Many of our clients have spent most of their lives either starting businesses or expanding the wealth they inherited from their ancestors. During this time, they have paid an extraordinary amount in taxes. The reality under any progressive tax system is that the top 1% of taxpayers contribute over a third of the total annual personal tax revenue. In fact, in the US, the top 1% account for an astounding 40.4%.

Our view is that paying taxes you don’t need to pay should not be called a tax; it should be called a mistaken donation. Most of the time, this generous donation to the US or other governments is simply due to not taking advantage of existing laws and legal planning strategies.

Tech Founder decides to do an “Eduardo Saverin”

One of our clients was the founder of a highly successful tech startup that was expected to undergo an initial public offering (“IPO”) within 12 to 18 months. Like Facebook co-founder Eduardo Saverin, he wanted to expatriate before this liquidity event and was fully prepared to pay his fair share of exit taxes on his substantial assets… but not more than what is required by law.

Dangers of DIY

This tech founder is clever, so he initially tried a DIY approach by Googling “Second Citizenships.” He then spoke with a salesperson from one of many “advisory” companies that appeared in his search results. This salesperson immediately suggested that he apply for citizenship through the accelerated naturalisation program in Malta.

After quickly realizing that the salesperson lacked tax knowledge or expertise, the founder suspected the promised timing was likely overly optimistic. As a result, he anticipated not receiving Maltese citizenship before the IPO. Since obtaining a second citizenship was a mandatory prerequisite for renouncing his US citizenship, he decided to stop handling this himself and sought assistance from his accounting firm, which introduced him to us.

The key to success is an integrated plan…and timing

As we had previously collaborated with the founder’s accountants, we were brought in to advise him. During our initial consultations, we discovered that due to his family history, he had a legitimate claim to citizenship by lineage in an EU country. This citizenship would take a similar time to process as the Maltese citizenship but at about 1/40th of the cost. When he questioned why the salesperson had not inquired about his lineage, we could only speculate that it might have been because, unlike the Maltese “product,” the lineage citizenship country did not payout any commission.

However, while lineage citizenship would put him on the path to low-cost EU country citizenship, it still did not address the timing issue of the IPO. As with all our US expatriation clients, we suggested supplementing his accountants with specialized US tax counsel and valuators. This integrated team quickly determined that if we could expatriate the client before the IPO, he would save millions in capital gains tax by obtaining a discounted valuation of his founder shares. Therefore, we suggested a Caribbean citizenship-by-investment that would grant him a second citizenship months before the IPO. Although there would be the cost of another citizenship, this additional expense would yield significant tax savings.

We also organized the scheduling of his expatriation interview for early in the next tax year, but before the IPO. This provided him time to do proper pre-expatriation tax planning and sufficient time after the IPO to generate the liquidity he would need to actually settle his Exit Tax bill the following year.

Returning after expatriating?

We developed a strategy for the founder to secure a US B1/B2 visitor visa, enabling him to travel to the US post-expatriation on his Caribbean country passport. Once his EU country citizenship was eventually granted, he began traveling to the US under the US Visa Waiver Program. Ultimately, we also obtained an L-1 Intra-corporate Transfer Visa, which allowed him more secure travel to the US without making him a US taxpayer again.

The rules and laws of each and every county are unique. Consult an expert.

Tax residency going forward?

Finally, we settled the client into tax residency in an EU country where he could enjoy a similar lifestyle to the one he had in the US—but at a tiny fraction of his former tax liability. This way, he avoided another common outcome of a poor expatriation plan: jumping out of the US tax pot and into another country’s tax fire.

The requirement for an integrated team of experts, independent advisors.

When we propose an engagement to a potential client, we sometimes receive feedback that the “salesperson” was offering their advice “free.” We quickly point out that the salesperson is actually being compensated through commissions paid by governments, real estate developers, or Golden Visa funds. Our firm has never accepted these types of third-party commissions. In fact, to maintain our conflict-free status, we return any commissions to the client. This might even result in a lower net cost for the client. However, as our Silicon Valley founder discovered, the key to success is knowing how the second residence or citizenship fits into an integrated tax strategy.

Through close collaboration with these other specialist advisors, we structured and executed an expatriation strategy that saved this client millions when considering the combined costs of his citizenship/residency strategy and the resultant tax savings, as compared to the “advice” of the Malta citizenship salesman. This case clearly illustrated the value of using an integrated team of highly experienced, expert advisors working solely in their client’s best interest.

Three critical life lessons to learn from the downfall of Sam Bankman Fried (even if you don’t invest in crypto)

By December 20th, 2022, the billions had disappeared. The crypto magician had gone bust. The man who was set to become the next Warren Buffett, the crypto genius who had pumped millions into both US political parties and had “reinvented capitalism,” was suddenly bankrupt.

As SBF soon discovered, “his” US passport is actually the property of the US government. They have allowed him to use it up to this point. It is not a difficult guess to think that the DOJ immediately placed a call to the State Department to cancel his US passport. Even though there is an Extradition Treaty between the Bahamas and the US, extradition is a long and complicated process. The simpler and faster way to get SBF into the US was to ask the Bahamian government to deport him. They could easily do so if SBF no longer fulfills the underlying condition of possessing a valid current passport. This is such a tried and tested method around extradition that it is actually described in the State Department’s Foreign Affairs Manual.  

However, some life lessons can be learned from his situation for ordinary families.

Lesson One: Only one passport can be potentially inhibiting and even fatal!

Many Americans discovered the limitations of relying solely on their US passport during the pandemic. Holding only a US passport meant they could not travel internationally—even when flying privately. While this was a nuisance for tourists, it also resulted in long separations for family members.

There are, of course, even more serious implications. Many wealthy individuals in more authoritarian states have found that holding a single passport can lead to long periods as political prisoners, travel restrictions, or even death. Often, the people who suffered these fates did not commit financial or other crimes; rather, they were simply perceived as a threat by those who held the power to cancel their passports.

Today, many wealthy global families across the political spectrum are justifiably concerned about a future where their country is ruled by “the other tribe.” They seek the option to “decamp” either temporarily or permanently if that other tribe makes life untenable.

Lesson Two: A second passport expands opportunity

For those in an emerging industry, a second passport may provide greater freedom. It can enable regulation from a location that puts them and their lawyers on equal footing with those seeking to regulate them. Previously, the emerging industry was the online gambling and sports book sector. Today, that industry encompasses all facets of the crypto sphere.

As previously mentioned, obtaining a second passport can enable one to remain globally mobile. This means you will not be affected if your original passport suddenly becomes internationally shunned due to actions or inactions by your home government concerning everything from public health responses to geopolitical events.

As previously outlined, it can create opportunities for all family members to live, study, and work abroad.

Lesson Three: A second passport without funds to live abroad is not optimal

If he can be believed, prior to his arrest, SBF had less than $100,000 USD in his bank account. This means that even if he had secured a second citizenship, he didn’t have sufficient funds available to do much with it.

Many families have a story about an ancestor who fled “the old country” with only a pittance in their pockets. While a great tale for future generations, it wasn’t much fun for those who had to actually live through it. This is especially true if they had previously been quite wealthy.

So you shouldn’t stop at legally obtaining a second citizenship. Wealthy individuals should also organize their financial lives. They need to ensure that they have sufficient funds beyond the reach of their home country. This will allow them to maintain their lifestyles and rebuild if they are ever forced to relocate permanently.

Planning to Act on the Three Lessons

So what’s next? It’s important to consider the practical steps that HNW families should undertake in today’s world. This is when I will return to an analogy I have often used in the past….”Living in a Wildfire Zone.”

Imagine living in a wildfire zone and not investing in fire insurance or planning a fire escape? The exact cause of the wildfire threat varies among families under specific circumstances. For some, it is a “Sovereign Risk.” They are concerned that their home government will take adverse action against them personally. For others, it is also a “Geopolitical Risk.” They fear that their home government will act (or fail to act) in a way that negatively impacts their family. This type of risk spans a spectrum from reactions to global pandemics to currency control or outright banning of cryptocurrencies. Others worry about political polarization/violence, mass shootings, rising prejudice, or Tax the Rich proposals.

Actual wildfires destroy valuable neighborhoods and lives. Likewise, these risks can have significant real-life consequences. If you recognize that your family lives in this metaphysical wildfire zone, then prudence demands that you look into the “Fire Insurance” of a second passport and/or residence and organizing assets abroad. The cost or “premium” of this type of fire insurance needs to be weighed against the damage your family will suffer should this theoretical wildfire become real and actually scorch your lives.

Once you’ve invested in “Fire Insurance,” a “Fire Escape Plan” should be mapped out. This planning provides your family with peace of mind. They know that if a wildfire ever gets too close for comfort, they will be able to avoid its damaging impact.

In some parts of the world, many wealthy families have been acquiring fire insurance and fire escape plans for generations. In other countries (such as the US), this is still a novel concept. Unfortunately, in both cases, many of these plans are put together by the families themselves or their non-expert advisors. Just like when building a house in an earthquake or hurricane zone or undergoing significant surgery, the price of failure makes the cost of proper, experienced, independent expert advice seem like a pittance.

A fire escape plan is only as strong as its weakest element. Don’t expose your family to wildfires without an effective fireproof plan.

In closing, you should act if you are concerned about:
•    Protecting your assets over multiple generations,
•    Providing education and career opportunities for children or grandchildren,
•    Ensuring security for yourself and your family…to protect against economic, political, social and climate uncertainties,
•    Reconnecting with your family lineage,
•    Enhancing your lifestyle,
•    And yes, possibly looking at your current tax structures,

The volatility in 2025 echoes that of the late 1930s, as major and minor powers jostled for power, resources, recognition, and tax revenue. The difference is that, back in the 1930s, the changes took months, whereas now they take hours to days. You do not have to be a billionaire to acquire Fire Insurance and a Fire Escape Plan.
 

About the author: David Lesperance is one of the world’s leading international tax and immigration advisors. He has co-authored, with an LSE Professor Emeritus, a key book on the impact of the movement of the wealthy on the countries they leave and to which they move. David’s personal interest in these areas of law grew from his experience working as a Canadian immigration and customs officer while studying law. Since being called to the bar in 1990, he has established his expertise with major law firms, his own law firm, and as a private consultant. David has successfully advised numerous high-net-worth families on residence/citizenship and domicile strategies to protect family wealth and well-being. These "Back-Up Plans" are both tax-efficient and livable in meeting the needs and preferences of all family members. This planning is influenced by his having relocated his own family three times and secured lineage citizenships for several close family members along with numerous clients. David is supported by a team of professionals, some of whom have worked with him since the early 1990s.

David can be reached by emailing [email protected], following him on LinkedIn, or subscribing to his blog, “The Lesperance Letter.”