In the previous article we have explained the basic mechanism of forced heirship, which applies in most of the world’s countries, including continental Europe and the Middle East. These jurisdictions restrict your freedom of testation to some extent and a portion of your estate must always be passed to protected heirs, such as surviving spouse and children, regardless of your will.
How Forced Heirship Applies to Expats
If you live and work abroad and have assets in multiple countries, things can get really complicated, as succession laws of all these countries must be taken into consideration. In most cases, the estate is distributed according to laws of the country where the assets are located, but this is far from a universal rule.
Some countries, such as the UAE, enable expats to have their inheritance governed by their home (domicile) country’s laws, but this is typically subject to certain criteria – for example, you must have your Will validated by local authorities.
Simple Measures Don’t Always Work
Several methods may naturally come to mind which try to circumvent forced heirship. Unfortunately, many of them are ineffective in practice, especially when undertaken without proper planning and without first consulting a specialist. Keep in mind that the particular rules are very different in different countries and a measure that works in one place is completely useless in another jurisdiction.
Lifetime Dispositions and Gifts
If you want some of your assets to pass to people or entities other than protected heirs, transferring them in a form of gift while you are still alive might seem like a simple way to avoid forced heirship. Unfortunately, various provisions are in place in many countries which enable the protected heirs to contest such gifts and as a result the assets may be clawed back into the estate, especially when the gifts occurred within a certain period prior to death.
Offshore Companies and Trusts
More complex measures involve offshore companies and trusts, transferring legal ownership from you as an individual to a newly formed entity resident in a different country. For example, your real estate is owned by an offshore company and shares in that company are held in a trust, which is governed by a jurisdiction that does not recognize forced heirship claims coming from your country of residence or domicile.
While this kind of structure can be very effective in many cases, there are many factors and little details which must be taken into consideration, including the laws of all the countries involved, any treaties between them, as well as your personal circumstances and family situation. Furthermore, different rules may apply to different kinds of assets, with real estate generally being more difficult to shelter from forced heirship claims than liquid wealth. Not least, laws and international treaties in this area are changing very fast.
Always Seek Specialist Advice
In light of the above it is clear that setting up an effective structure to protect your assets and circumvent forced heirship rules requires good knowledge of applicable legislation, treaties and their recent changes. You should always seek professional advice before taking any steps, because failing to do so may prove costly in the future if a disgruntled protected heir makes a successful claim. Even when you don’t think that a complex structure involving offshore companies and trusts is necessary in your case, it is always best to seek legal advice when writing your will, in order to make sure you understand how all the rules apply to your particular situation.