Estate Planning And Foreign Assets

By: Randall A. Denha, J.D., LL.M.

Estate planning is the process of determining how to treat property upon a person’s death. This process is often complicated if a person has property in different states or countries. Consulting with a local attorney in the country where the foreign property is located may be critical to understanding if and how local laws will affect your estate.

Full disclosure is important in the attorney-client relationship. Make sure you disclose all your assets to your attorney. Some people fill out estate planning questionnaires and do not include their foreign assets because they think the assets do not have relevance in the United States. That is not true. Your estate planner needs to know what the assets are and where they are located to help you determine how they should pass on your death and what the estate tax implications are.

Many clients are surprised to find out that as U.S citizens they are taxed on their worldwide assets for estate tax purposes. Your attorney will be able to advise you on the estate tax implications of your foreign property and whether there are treaties in place with that country that will mitigate the estate taxes. 

The following are other important items to keep in mind in planning with foreign assets.

Each Jurisdiction Has Different Laws

The existence of different laws in these jurisdictions has a lot of impact on the succession plan. You need to have the right legal counsel to assist you to make the right decisions in these varying jurisdictions.

The estate planning lawyer that you choose needs to have experience and knowledge in the jurisdiction where your estate lies. They need to understand and interpret the different laws that regard conflict resolution and the requirements for the various tools of the estate plan. Each state where the property is located falls under a different jurisdiction, and this means that it can lead to problems, for instance, determining where to obtain probate. A few states have similar rules, but you need to make sure you are sure what to expect.

Ancillary Probate

Ancillary probate arises when multiple probate proceedings occur across multiple jurisdictions. This becomes necessary when a person owns property in a different state or country than where he or she died. When a person dies, the real estate and other property that is physically in a state is under the jurisdiction of that state.

There are a number of drawbacks to ancillary probate which makes people want to avoid the situation. Because there are two probate proceedings going on at the same time, the process is more expensive. A probate lawyer may need to be hired in each jurisdiction. The executor’s duties are doubled. The courts may reach contradictory results concerning the same property.

United States Wills and Recognition

Some countries recognize wills that are drafted in accordance with the laws of the United States. However, for an American will to be considered valid in another country, it must usually be valid under the laws of the foreign country. However, not all countries are willing to accept the validity of American wills or will only do so under specific circumstances.  Different jurisdictions may have different laws as to the validity of wills. For example, in most states, a valid will requires the signing to be completed in front of two witnesses. Some countries may require three witnesses. Many countries do not accept a holographic will or an oral will. Some countries will not recognize provisions that will result in a spouse or child not receiving an inheritance. Some countries require another relative other than a spouse to be an heir to at least part of the property.

International Wills

With every jurisdiction having slightly different laws, there was an attempt in 1973 to harmonize estate planning law with the creation of an “International Will”. Under the “Convention providing a Uniform Law on the Form of an International Will” or the “Washington Convention” a set of minimum requirements was established for a legally accepted Will through the Uniform International Wills Act. The idea being that any Will written that complies with these minimum requirements, would be accepted by any jurisdiction that signs up to the convention. Sadly, the international legal community didn’t really jump at the idea and an International Will is currently only accepted in Belgium, Bosnia, Ecuador, Herzegovina, Canada (except BC and Quebec), Cyprus, France, Italy, Libya, Niger, Portugal, and Slovenia, as well as 23 US States.

The legal language of the International Will convention sets out what it required to formalize a Will, but it doesn’t describe any content of the document. To be a well-drafted Will, the document would typically be at least 5-6 pages and include more than 20 clauses. The Will has to revoke previous Wills, appoint an Executor with an alternate. It then has to describe the distribution of the estate, with alternate and residual plans.

It is at this point, the Will starts to become complicated. Different jurisdictions have their own laws as to what can and cannot be done within a Will, for example whether a spouse or adult child can be disinherited (this actually varies across US States and Canadian Provinces) and how the disposition of real estate is handled.

Multiple Wills

When establishing a will, consideration must be given to where you are and where the property is located. In all cases, the will has to be valid for it to be applicable. One will or two? Depending on where the foreign assets are located, it may be best to have two wills, one disposing of the foreign property and a second disposing of your U.S. assets. It is important that your U.S. attorney and your foreign counsel coordinate on drafting the wills. You don’t want a will in one jurisdiction to cancel out a will in another jurisdiction. There is an added benefit to having two wills. Probate in each country will most likely be easier. Probating a will written in another language can be difficult and time consuming. A foreign will needs to be translated and understood by the legal authorities in that country. Having a separate will in each country usually makes probate easier.

Each will should refer to the other will without using any language to revoke the sustainability of either will. If neither will discusses foreign property, this may be considered part of the residuary estate and may be disposed of according to that particular provision. If there is not any discussion of the residue of the estate, the laws of intestacy will dictate how the property is disposed of. If there are two wills that are concurrent, the different countries may have different outcomes when it concerns laws of intestacy.

Simplifying Steps

If you own foreign assets, play it safe. Consult a professional in the foreign jurisdiction to make sure your will distributes your foreign assets the way you intend. If you do need two wills, it’s important that they be professionally drafted so that the provisions of the wills are coordinated with each other. In addition, the wills should provide that neither revokes the other. Although there may be additional costs in preparing a second will, it will make settling your estate easier and faster, and will ensure that your assets are distributed according to your wishes.