Expats who have assets in multiple jurisdictions need to be aware of the differing rules between jurisdictions and what the impact will be when they die. It can be a minefield for those without the right guidance. Lines are often blurred and so protecting family and individual wealth requires more planning and care than ever before. Here are 5 things you should keep in mind.
1. Know who you are and where you live
When dealing with assets in different jurisdictions, having an understanding of your domicile, habitual residence and nationality is key. These may seem like relatively easy terms to understand, but you'll be surprised when one country defines domicile as something completely different to another country when dealing with issues of succession law. Despite its importance, domicile is an ill-defined and nebulous concept, and it can be difficult to definitively state an individual's domicile at any particular time.
2. Understand tax regimes
Different jurisdictions have different rules. Inheritance taxes can be designed in different ways, for example. They can place the liability on the estate or on the recipients of inheritance. So when dealing with a cross-border estate, be clear how assets in the countries you have them in will be taxed. The fact that different states may use common law domicile, deemed domicile, applicable law, civil law domicile, tax residence, habitual residence, nationality or situs of either the donor on the one hand, or the donee on the other, means that either some assets are not taxed at all, while others are taxed twice or even more times.
The UK taxes UK assets and the worldwide assets of someone dying domiciled or deemed domiciled in the UK.
The US taxes US-situs assets and the worldwide assets of someone dying a US national.
France taxes French assets and those of someone dying resident of France and in some cases beneficiaries resident in France.
The Netherlands taxes Dutch assets and those of someone dying within 10 years of having been Dutch resident.
Germany taxes German assets and those of someone dying within 5 years of having been resident in Germany and beneficiaries within 5 years of having been resident in Germany (extended to 10 years where the US/German double-tax treaty is involved).
Double-tax treaties resolves some of these problems, but there are very few of these and they themselves can create differences and unfairnesses.
3. Understand the succession rules in the country where your assets are
Obviously, different countries have different laws and legal systems. Where you have assets in different systems of law or where you have multiple nationalities, understand the rules for specific types of assets and how they are distributed upon death. For example, civil law systems such as France use a forced heirship regime whereby an individual cannot freely dispose of their assets as they see fit, instead they are separated into an indefeasible portion, passing to the deceased's next-of-kin. Also, in civil law jurisdictions, all assets vest directly in your heirs when you die and they will be responsible to pay relevant taxes (and liable pay any of your debts). English succession law makes a distinction between immoveable (real estate) and movable (basically everything else) property. The rules allow you to gift your immovable assets in the UK to whomever you choose, irrespective of your international links.
4. Make sure you have a Will and it is up to date
Your Will speaks from death and circumstances before you die can change. When planning for a cross-border succession, having an up to date Will is vital. It might make sense to have more than one Will depending on your international connections. Ensure also that the Will is valid and will be accepted in the jurisdictions where you hold your assets.
5. Keep records
Make sure to keep proper records of anything that relates to your estate, for example, gifts. In the UK, if you make gifts from your estate and survive 7 years from the date of the gift, the gift doesn't count towards the overall value of your estate. This can prove to be a tax efficient way of providing for your loved ones. However different jurisdictions have different accounting requirements and so it important to keep up to date and accurate records of all gifts made from your estate both in your home country and abroad.