A Guide to International Estate Planning for Expats
Discover everything expats need to know about international estate planning, from wills and trusts to taxes. Secure your legacy across borders.
Get estate planning adviceEstate planning is vital for anyone looking to secure their legacy and protect their loved ones. But for expats living abroad, the process becomes more complex.
With different rules, regulations and laws to contend with, your estate plan has to align with your unique circumstances.
In this international estate planning guide, we break down what you need to know about planning your legacy as an expat.
Introduction to International Estate Planning
Estate planning involves organising how your assets will be managed, preserved, and distributed after your death. A well-crafted plan typically includes:
- A valid will
- Power of attorney documents
- Trusts, if appropriate
- Advance healthcare directives
For those with assets or family members in other countries, creating a wealth transfer strategy is more challenging.
International estate planning addresses these challenges. It focuses on cross-border laws and taxes. The goal is to minimise legal complications, reduce estate taxes and pass on your assets as you intended.
Why Estate Planning Matters for Expats
As an expat, you likely face unique challenges that can make estate planning tricky. That’s why it’s crucial to have a wealth transfer strategy that works for your specific situation.
Without a well-structured plan in place, you could:
- Trigger double tax
- Have less control over your estate due to local inheritance rules
- Leave your assets tied up in probate courts across multiple countries
Key Considerations in International Estate Planning
Domicile and Residency Status
Your domicile and residency play a major role in how your estate is taxed and distributed. Some terms to be aware of are:
- Domicile: This refers to your permanent home, where you intend to reside indefinitely.
- Residency: Where you currently live and may be subject to tax laws.
- Tax residency: This may differ based on how long you spend in a country or your ties to it.
Understanding these terms is crucial for creating an effective international estate plan.
Common Law vs Civil Law Systems
In common law countries, such as the United Kingdom and most of the United States, you often have the freedom to distribute your assets as you wish. However, Spain, France and several other countries around the world operate under civil law.
Countries that operate under civil laws often impose forced heirship, which dictates who your estate goes to, giving you less control.
In the UAE, unless a recognised will is registered, local courts may apply Sharia-based inheritance laws.
Registering a DIFC will allows expats to override this and ensure their assets are distributed according to common law principles and, most importantly, their specific wishes.
Asset Location and Probate
Managing international assets brings added layers of complexity as each country has its own probate system. If your assets are held in different countries, your estate may be subject to multiple proceedings. This could result in delays and higher legal costs.
Core Components of an International Estate Plan
Trusts
Trusts are a powerful tool for expats. They offer a way to protect assets, streamline wealth transfer and help reduce estate taxes. Be aware that not all countries recognise trusts, particularly in countries with a civil law system.
Wills
A will is different to a trust. It is the cornerstone of any estate plan and outlines your final wishes. Many expats wonder if they need separate wills for each country where they hold assets.
Countries around the world have different laws. Even if you have a UK will, it may not be valid in another country. If it is recognised, it may not be as effective.
For expats, it’s not uncommon to have more than one will. However, having multiple wills must be carefully considered to avoid potential issues.
Power of Attorney
Power of attorney (POA) allows you to appoint someone to handle financial and/or legal decisions if you are unable to. You may need to consider separate powers of attorney (POA) in some countries as part of your cross-border estate plan.
Tax Implications for Expats
Inheritance Tax
Inheritance tax (IHT) is one of the main estate taxes. Different countries have different rules on how they tax your estate.
For example, in the U.S., IHT is not a federal estate tax and only applies in certain states. In the UK, you pay inheritance tax (IHT) at a rate of 40% if your estate is worth over £325,000 (the nil-rate band).
One of the challenges for expats is knowing which countries have taxing rights over their estates. In some countries, it’s based on your residency status, while in others, it’s your domicile status.
In the UK, you only pay IHT if you have lived in the UK for more than 10 of the last 20 years—this is sometimes referred to as the 10-in-20 rule. To learn more about IHT and the various tax exemptions, visit the GOV.UK website.
Gifting and Lifetime Transfers
Understanding estate and gift tax rules can help you be more tax-efficient. Making lifetime gifts can reduce the size of your taxable estate.
As part of your international estate tax planning, there are some points to consider as a UK expat:
- Annual limits: There is a yearly limit on the amount you can gift tax-free. The annual limit in the UK is currently £3,000. In addition to your yearly threshold, you can give up to £5,000 if it’s a wedding gift.
- The 7-year rule: You do not pay tax on gifts if you live for seven years after giving them. If you die within that seven-year window, you will pay IHT on the gift based on a sliding scale from 8% to 32%.
Double Taxation
Double taxation occurs when two countries claim taxing rights over the same assets. If this happens, you may be taxed twice unless a double tax treaty is in place.
Getting Started: Practical Steps for Expats
Everyone’s estate planning process will look a little different. Here are some practical steps to get you started:
- Take stock of your global assets and liabilities
- Confirm your legal residency and domicile status
- Review existing wills, trusts and POAs
- Understand inheritance rules for countries and where they apply
- Speak with a qualified professional
- Review your plan and update it to reflect important life changes
Summary
Moving abroad opens up opportunities but comes with its challenges, especially when it comes to your estate. That is why international estate planning is essential for expats and anyone with cross-border ties.
Holborn Assets is a leading award-winning financial services provider. We specialise in the expat market and have the cross-border expertise to help you protect and pass on your wealth.
Get the expert international estate planning advice you need to secure your legacy. Book a free, no-obligation meeting and learn how we can help you.
Frequently asked questions
International estate planning is a specialised area of financial planning. It involves organising and managing your global assets, properties, and wealth transfer across different countries. It considers the various legal and tax implications in each jurisdiction, aiming to minimise taxes and simplify the process for your heirs.
Expats often have assets, properties, or beneficiaries in multiple countries. Without an international estate plan, you could face:
- Complex legal challenges
- Lengthy and costly probate processes in multiple jurisdictions
- Potential double taxation on your assets
- Unintended distribution of your estate due to conflicting national laws (e.g., forced heirship rules).
Your domicile is crucial because it determines which country’s inheritance laws and taxes apply to your worldwide estate. This can be complex, as your domicile might differ from your tax residency or where you currently live. Misunderstanding your domicile can lead to unexpected tax liabilities or disputes over the distribution of your assets.
While a UK will is legally valid in the UK, its effectiveness abroad varies significantly by country. Some countries may not recognise it, or it might conflict with local inheritance laws (like forced heirship). For expats with assets in multiple jurisdictions, it is often advisable to have separate wills tailored to each country or an internationally recognised will, such as a DIFC will.
Forced heirship is a legal concept, primarily found in civil law jurisdictions (e.g., Spain, France, UAE without a registered common law will), that dictates a fixed portion of your estate must pass to specific heirs, usually direct descendants. This limits your freedom to distribute assets as you wish, unlike common law systems where you generally have more testamentary freedom.
Avoiding double taxation requires careful planning. Strategies include:
- Utilising Double Taxation Agreements (DTAs): Many countries have treaties to prevent income and assets from being taxed twice.
- Strategic Asset Structuring: Holding assets in certain legal structures or jurisdictions can sometimes mitigate tax exposure.
- Gifting: Making lifetime gifts can reduce your taxable estate, subject to the rules in relevant jurisdictions.
- Professional Advice: Consulting with a qualified international estate planning expert is crucial to navigate these complex rules effectively.
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