The Complications Of Multi-Jurisdictional Estate Planning

For a growing number of people, ‘home’ is no longer one place. A British family retired to Spain, an American executive working in Singapore, a couple who split their year between Australia and Asia - all of them hold assets, and often family ties, across more than one legal system. 

Estate planning that works perfectly well for someone who has lived their whole life in one country can fall apart entirely once borders are involved, and this is not a problem reserved for the very wealthy. Anyone who has moved abroad, bought property overseas or built a life that spans more than one country is affected.

The country where you live, the country where you hold assets, and the country you consider ‘home’ can all apply different succession rules to your estate - and those rules do not always agree with each other. 

Here are some important considerations to be aware of when estate planning across borders.

One Will Is Not Always Enough

A will drafted in one country is not automatically recognised, or guaranteed to work as intended, in another. Some internationally mobile families need more than one will, each covering assets in a particular country, carefully drafted so they do not accidentally cancel each other out or leave gaps between them. 

Others find that a single, well-drafted international will is sufficient for their circumstances. Working out which approach fits your situation is not something to guess at, and generally needs advice from an expert familiar with how the relevant jurisdictions interact.

Multiple Rounds Of Probate

Owning assets in more than one country can mean your estate goes through probate more than once, in more than one legal system, often at very different speeds. In practice, this can significantly slow down how quickly your loved ones receive what you have left them, at a time when they need it least. It can also mean paying legal costs in more than one jurisdiction to administer a single estate. Your estate planning should take this into consideration and make liquidity provision to meet inheritance or estate tax liabilities and ensure that your family are not left without funds while probate is carried out. 

Forced Heirship 

Some countries, including France, Germany, Spain, Italy, Switzerland, Japan and Brazil, operate forced heirship, where a fixed share of your estate must go to certain family members by law, regardless of what your will says. If you have relocated to a country with forced heirship rules and your will was drafted somewhere else, part of your estate could end up distributed in a way you never intended, however clearly your wishes were written down. 

Understanding these legal intricacies ahead of time means you can plan around the law instead of being blindsided by it - and make sure your loved ones aren't left with an unwelcome surprise once you're gone.

For example, under EU rules known as Brussels IV, anyone with assets in a participating EU country can make a formal election in their will for the law of their own nationality to govern their succession, rather than defaulting to the forced heirship rules of the country where they live. This applies regardless of nationality, so a British retiree in Spain or France can still choose for UK law to apply to their estate, provided the election is made expressly rather than simply assumed. 

Inheritance Tax Or Estate Tax - Not The Same Thing

Countries take two quite different approaches to taxing what is left behind. Some, including the UK and the US, tax the estate itself before anything is distributed. Others tax each beneficiary individually on what they personally receive, often at a rate that depends on how closely related they are to the deceased - a spouse or child typically pays less, or nothing, while a more distant relative or unrelated beneficiary can pay considerably more. This approach is common across much of continental Europe. The distinction matters in practice, because it changes who actually bears the cost, and it can make a real difference to how gifting and bequests should be structured within a will.

Tax In More Than One Place

Inheritance and estate taxes are rarely coordinated neatly between countries, but they are not entirely left to chance either. A number of countries have signed inheritance and estate tax treaties with one another, generally designed to prevent the same assets being taxed twice and to set out which country holds the primary right to tax a particular asset. 

Real estate is typically taxed in the country where the property sits, while financial assets such as bank accounts and investments are more commonly taxed based on where the deceased was resident. Where a treaty applies, relief usually comes through a tax credit, an exemption, or a deduction for tax already paid abroad, rather than the same assets being taxed in full twice over.

Not every country pair has a treaty in place, and where one does exist, exactly how it applies often comes down to tricky questions of tax residency and domicile, which are not always the same thing. This is a substantial topic in its own right, and one we cover in more detail in this companion piece on international inheritance tax treaties.

Trusts Do Not Always Travel Well

Many internationally mobile families, particularly those with UK or US connections, use trusts as a core part of their estate planning. The difficulty is that many civil law countries, including much of continental Europe and large parts of Latin America and Asia, do not recognise the trust concept in the same way, or tax it in ways that were never intended. A family who set up a trust in one country and later relocated may find the trust is simply disregarded, or that the underlying assets are treated as though they still belong to the settlor's estate. Anyone relying on a trust structure across more than one jurisdiction should have it reviewed by an adviser familiar with how the relevant countries treat trusts, well before it is needed.

Matrimonial Property Regimes

Before a will is even considered, some countries first ask a more basic question - what belongs to you, and what belongs to your spouse? 

Many countries, including France, Spain, Italy and Portugal, default to a community property regime, under which anything acquired during the marriage is jointly owned, regardless of whose name it is registered in or whose income paid for it. Property owned before the marriage, or received individually by gift or inheritance, generally remains separate. This means that when the first spouse dies, only their half of the jointly owned property is theirs to leave - the other half was never part of the estate in the first place, as it already belonged to the surviving spouse. 

Establishing which matrimonial regime applies, and to which assets, needs to happen before a will is drafted, not after, since it determines what the estate actually consists of.

None of this means cross-border estate planning is impossible, only that it needs a different approach to planning within a single country. The starting point is usually a clear picture of where your assets sit, which jurisdictions' rules apply to each of them and how those rules interact with your wishes.

Getting this right at the outset is not the end of the exercise, though. A cross-border estate plan is not a one-off task, and it is worth revisiting whenever:

• You move to a new country
• A country where you hold assets changes its succession or tax law
• You marry, divorce or remarry
• A spouse or co-beneficiary dies
• The countries where your assets are held change significantly

Hoxton Wealth's advisers work with internationally mobile clients on cross-border estate planning, wherever in the world your life and assets are based. They will help you achieve your estate planning goals as efficiently as possible and review your plans after major life events.

Get in touch to talk through how a multi-jurisdictional estate plan might look for you.