Legalwise A Fresh Look at Estate Planning - 4 September 2008 International Estate Planning and Estate Administration

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Legalwise –––– A Fresh Look at Estate PlanningA Fresh Look at Estate PlanningA Fresh Look at Estate PlanningA Fresh Look at Estate Planning ---- 4 September4 September4 September4 September 200820082008 2008 International Estate Planning and Estate Administration International Estate Planning and Estate Administration International Estate Planning and Estate Administration International Estate Planning and Estate Administration

1. 1. 1.

1. Private International ClientsPrivate International ClientsPrivate International Clients Private International Clients

International issues in succession law have grown in importance in recent years due to the ageing world population, increased wealth, increased mobility and changing family

dynamics. The establishment of the European Union and subsequent blurring of borders has led to a crystallisation of these issues in the European context and the need for urgent review and reform.

The topic of international estate planning may conjure notions of high net worth individuals and families shifting assets to tropical locations via offshore trusts but in today’s global community, seemingly average clients are more likely than ever before to have an interest or connection outside of Australia.

Many practitioners will, perhaps without realising it, already have a solid base of international private clients. Typically they are:

1. Foreigners investing in Australia, or who have Australian resident family members; 2. Foreigners residing in Australia who need to plan transfers and income taxes on a

year-to-year basis; 3. Australians living abroad;

4. Australians residing in Australia who have noncitizen spouses and foreign beneficiaries;

5. Australians and residents who are beneficiaries of foreign trusts and will receive gifts and inheritances from noncitizens;

6. Fiduciaries of foreign trusts with Australian and resident beneficiaries;

7. Australian fiduciaries of domestic trusts with foreign beneficiaries and investments; and

8. Australian and foreign trustees with interests in controlled foreign corporations and passive foreign investment companies.

International succession law issues arise irrespective of the value of the estate. The problems confronting the European Union member states highlight this issue. There has been a lot of press coverage on the migration trends from Eastern European member states to Western European states (e.g. the influx of Polish nationals to the United Kingdom).

Previously international succession law issues were only a problem for high net worth clients or ultra high net worth clients - and they could afford to obtain the necessary complex structuring and tax advice.

Private international clients or transnational or multi-national clients, particularly those of limited means, present estate lawyers with several challenges.

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2. 2. 2.

2. The international challengesThe international challengesThe international challenges The international challenges

When a client consults you for a will and he or she ordinarily resides in Queensland, and all of his or her assets, liabilities, executors and beneficiaries are located in Queensland, the will drafting process is pretty straightforward.

Similarly, when an executor instructs you to administer an estate where the deceased was domiciled in Queensland and all the assets, liabilities and beneficiaries are located in

Queensland. It is quite clear that Queensland law will apply to the administration of the estate.

When real estate is owned in another Australian state or territory some thought is required in the administration process – e.g. is a grant of representation required in that jurisdiction to enable the transmission of the property to the executor or beneficiary; is there any stamp duty (even nominal duty) payable; who are potential applicants for a family provision application or other claim against the estate and what time limits apply; if an intestacy, who is entitled to the deceased’s estate pursuant to the laws of intestacy of that Australian state or territory.

As the Australian states and territories work towards uniform succession laws, the differences between each state and territory are diminishing.

When international elements arise, particularly those involving the interaction of different legal systems such as common law, civil law, Sharia law and customary law, the problems can be more complex.

When two or more international legal systems are involved the conflicting problems are generally identified as1

:

1. the rules about wills including recognition and enforcement;

2. the rules determining the law which applies to the devolution of property to heirs; 3. the rules governing the administrative procedures to effect the transfer of

property;

4. questions of jurisdiction of courts, administrative or other official bodies, recognition and enforcement of judgments and decisions;

5. questions of capacity to dispose of property on death; 6. questions of interpretation of provisions;

1

Robertson, C, International Succession Law A Co-ordinated Approach? Journal of the Law Society of Scotland October, 1989 at 377.

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three 7. trusts, including applicable law and recognition and enforcement;

8. succession contracts, including applicable law and recognition and enforcement; 9. matrimonial regimes having effect on death;

10. taxation regimes having effect on death.

It is outside the scope of this paper to attempt to address all of these issues. Each topic, of itself is worthy of its own paper.

This paper will deal with the preliminary issues that should be considered when preparing an estate plan or administering a deceased estate where international elements are present.

3. 3. 3.

3. Basic conceptsBasic conceptsBasic concepts Basic concepts

Before looking at the key issues to consider when advising private international clients is it necessary to have an understanding of some basic concepts. When determining which succession law applies, one jurisdiction may apply the law of a person’s nationality, another the law of domicile or the law of habitual residence, and another may apply the law of the

situs.

Domicile Domicile Domicile

Domicile – The common law gives the word “domicile” a technical meaning which distinguishes it from habitual residence. No person can be without a domicile nor can a person have more than one domicile.

Domicile is very relevant in Australia and other common law jurisdictions such as the UK in determining whether a person is subject to, or will escape, certain types of taxation on death. It also determines which succession law will apply to determine how an estate asset will devolve.

Residency Residency Residency

Residency – Civil law systems favour habitual residence as a determining factor for

applicable succession law. The concept of habitual residence is a question of fact although it is generally perceived as being the place or country in which a person has his or her home. Habitual residence is necessary in order to establish domicile.

Confusingly, the French word domicile (which extends to Belgium and Switzerland) means habitual residence in English. It does not necessarily mean domicile in the technical English sense. In France residence for more than 6 months of the year creates a French domicile or residency. This is of course, subject to consideration of an individual’s business, social and family life.

It is possible for an individual to be domiciled in a common law country but at the same time habitually resident in a civil law country. A person who is habitually resident in such a

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four country may find that country has jurisdiction to determine how assets anywhere else in the world will devolve.

Nationality Nationality Nationality

Nationality – nationality means allegiance to a sovereign state coupled with the right to look to that state for protection whilst in a foreign state (this may be called citizenship). It may be acquired by birth or naturalisation. Nationality is used as a connecting factor by countries such as Spain, Portugal, Germany, Austria, the Netherlands and Italy but this is itself can cause difficulties when individual is found to be stateless or to have dual nationality.

Si Si Si

Situstustustus – the jurisdiction in which the asset is located.

Unity of succession Unity of succession Unity of succession

Unity of succession – The principle of unity requires only one law to govern succession to all the deceased’s property. In reality a Unitarian country must allow immovables in a foreign country to be governed by the law of that foreign country if the foreign country applies the principle of scission.

Scission of Succession Scission of Succession Scission of Succession

Scission of Succession – the principal of scission (which is applied in most common law jurisdictions) requires one law to govern succession to movables (whether the law of nationality, domicile or habitual residence) and the lex situs to govern succession to immovables. Australia, the UK, France and Belgium are schismatic countries.

Renvoi Renvoi Renvoi

Renvoi – This is the doctrine that applies when the choice of law rules of one country refer to the law of another country in resolving a legal dispute. Difficulties arise if one country’s rule as to conflict of laws refers a dispute to the law of a foreign country, and the law of that foreign country refers the dispute either back to the law of the first country (remission) or to the law of a third country (transmission). It creates the potential for a perpetual series of references from one system of law to another.

1. Rejection of renvoi - decide that a referral to the laws of the foreign jurisdiction is to the internal law of that jurisdiction;2

2. Single renvoi doctrine – the court applies the law of the foreign jurisdiction

including its conflict of law rules. The court would accept either a remission3

back to its own laws or a transmission4

to the law of a third jurisdiction; or

3. Foreign court theory or total renvoi - this theory requires the court, when referred by choice of law rules to the laws of a foreign jurisdiction, to act as if it were the

2 Re Annesley [1926] Ch 692 at 709. 3 Simmons v Simmons (1917) 17 SR(NSW) 419. 4 Re O’Keefe [1940] Ch 124.

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five foreign court and apply the foreign law as if the court were a court of that foreign jurisdiction.

When an Australian court is referred to the laws of a foreign jurisdiction the court generally treats this as a referral to the internal law of that jurisdiction (i.e. total renvoi).5

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4. Characterisation of property Characterisation of property Characterisation of property Characterisation of property

Common law systems, being schismatic, espouse that the deceased’s movable assets will be distributed according to the law of his domicile at the time of death.6

The deceased’s immovable assets will be distributed to the persons entitled in accordance with the law of the situs.7

Not all legal systems classify specific items of property the same. The classification of property as movable or immovable is a question entirely for the law of the situs of that property at the time.8

For example, in Australia9

and New Zealand10

a mortgage debt has been classified as movable property on the basis that the debt is the principal and the security an accessory.11

The English courts have taken a different view and treat a mortgage as immovable property.12

By comparison, the former USSR, during the Soviet Era abolished private ownership of land and the division of property into movables and immovables.13

The new Russian Civil Code reinstates the division of property and includes a specific definition of immovable property that includes:

(i) immovables by nature (such as land, forests and buildings); and

(ii) immovables by statute (such as state registered property like aircraft, ships and objects in space).

5

Amin Rasheed Shipping Corp v Kuwait Insurance Co [1984] AC 50 at 61 – 1; Barcelo v Electrolytic Zinc Co of Australasia Ltd (1932) 48 CLR 391 at 437 – 8.

6

Bremer v Freeman (1857) 10 Moo PC 306.

7

Re Ralston [1906] VLR 689

8

Haque v Haque (No2) (1969) 114 CLR 98.

9

Re Young [1942] VLR 4 and Haque v Haque (No2) (1969) 114 CLR 98.

10

Re O’Neill [1922] NZLR 468

11

Harding v Commissioner of Stamps for Queensland [1898] AC 769.

12

Re Hoyles [1911] 1 Ch 179.

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six 5.

5. 5.

5. ConventionsConventionsConventions Conventions

Although there has been an increase in the number of estates with international elements recently, international problems in the area of succession to property have been of substantial concern for more than a century. This concern led to the establishment of the Hague Conference on Private International Law. The purpose of the Hague Conference is to work towards the progressive unification of private international law.14

The Hague’s work concentrates on negotiation and drafting of multilateral treaties (conventions) in the different fields of private international law (e.g. conflict of laws for contracts, torts, wills and estates, trusts and marriage).

Member states of the European Union have also reformed their private and public international laws. The areas of contract, tort, free trade, labour law and environmental law have been extensively studied.15

The areas of family law and succession have lagged behind in the unification process. The Commission of the European Communities presented a green paper on the subject of succession law and wills and public responses were debated in 2006 so progress is slowly being made at an EU level.16

Succession to property (particularly family property) is intimately tied to local social views and the substantive laws vary greatly from one country to the next. Although unification of family and succession laws has become a “hot” topic for scholars in Europe, unification, in the short term at least, is not likely.17

So far international efforts have concentrated on reconciling the different choice of law approaches in succession rather than attempting to create uniform laws.

The purpose of the Commission of the European Communities Green Paper on Succession and Wills was not to change the substantive law of EU Member States but to establish a uniform framework to ensure that if more than one Member State is involved in the administration of an estate, then agreement can be reached on who is entitled to act, and under which jurisdiction.

Australia joined the Hague Conference on Private International law in November 1973. The Conference has produced some important conventions for estate practitioners:-

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Art. 1 Statute of The Hague Conference on Private International Law

15

For example see the 1980 Vienna Convention on the Sale of Goods, Warsaw Convention of 1929 on Air Transport. See also Koskenniemi, M “Legal cosmopolitanism: Tom Franck’s Messianic World” (2003) 35 International Law and Politics 471.

16

http://eur-lex.europa.eu/LexUriServ/site/en/com/2005/com2005_0065en01.pdf

17

Vaquer, A. “Wills, Divorce and the Fate of Dispositions in Favour of the Spouse: A common trend in European Laws of Succession [2003] 6 European Review of Private Law 782; Robertson, C. International Succession Law. A co-ordinated approach Journal of the Law Society of Scotland Oct 1989 at 377.

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• The Convention on the Conflict of Laws relating to the Form of Testamentary Dispositions of 1961

• The Convention on Jurisdiction, Applicable Law and Recognition of Decrees relating to Adoptions 1965

• The Convention on the Law Applicable to Trusts and on their Recognition 1985 • The Convention on the Law applicable to Succession to the Estates of Deceased

Persons 1989.18

Australia signed the Convention on the Conflict of Laws relating to the Form of Testamentary Dispositions of 1961 on 22 September, 1986 and it entered into force of law on 21 November, 1986. Australia signed the Convention on the Law Applicable to Trusts and on their Recognition 1985 on 17 October, 1991 and it entered into force of law on 1 January, 1992.

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6. The key issuesThe key issuesThe key issues in international estate planning and administrationThe key issuesin international estate planning and administrationin international estate planning and administrationin international estate planning and administration

There are three key issues to consider when advising a private international client, both in the estate planning and estate administration context. They are:

A. Which law prescribes how the various assets will be transmitted upon death?

B. Do the provisions in the will (if there is one) match the inheritance rights in the various countries?

C. Which tax regime will apply to the asset and/or beneficiary and on what basis is tax levied (i.e. residency, domicile or nationality)?

All three questions are interlinked by the concepts of domicile, habitual residence, nationality and situs.

Estate Administration

The common law system distinguishes between the law of the administration of the estate and the law governing succession.

Upon the death of the deceased, the estate vests in the personal representative. The personal representative administers the estate by collecting in the assets, paying the debts, and distributing the remaining assets to the beneficiaries in accordance with the

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eight terms of the will or rules of intestacy. Title to the assets of the deceased vest in the personal representative during the process of estate administration. The personal representative may transmit that title to the beneficiaries or a third-party purchaser.

In civil law systems there is no distinction between administration of the estate and succession. The assets and liabilities of the deceased are transmitted directly to the deceased’s heirs. The heirs receive the estate charged with payment of any legacies and debts. An heir has the option to reject their inheritance or to accept it with the benefit of an inventory so as to protect themselves from any unexpected liabilities.

If "executors" are named, civil law countries may have difficulty recognising what title (if any) such people have and may not recognise their right to charge for their role.

A. Which law prescribes how the various assets will be transmitted upon death?

In determining which succession law applies, there are competing connecting factors. One jurisdiction may apply the law of the deceased’s nationality, another jurisdiction may apply the law of domicile (in a common law sense), another law of habitual residence, and yet another, the law of situs (particularly when immovable assets are involved).

If, at the time of death, a person was a Spanish national, habitually resident in France but ordinarily domiciled in Australia, with immovable property in New Zealand – potentially four different laws of succession could apply to the assets in the estate.

The common law states that, in order to ascertain how assets held outside the jurisdiction are to be transmitted, one looks at the nature of the asset and at the domicile of the owner.

If all countries agreed on this interpretation it would be relatively easy to advise on the likely devolution of property on death. There are however relatively few common aspects and the conventions and treaties that are in place may not have been signed or ratified by all the countries in question in the particular estate plan or administration.

A declaration of domicile contained in a will may be persuasive but is not sufficient on its own to determine the domicile of the deceased.

Generally the law of the forum in which immovable property is located will determine the relevant connecting factor for succession to the assets in that jurisdiction.

It is possible for a testator to choose the law which he or she requires to govern questions of construction of his or her will. An express clause should be included in the will declaring that it is to be construed in accordance with Queensland law (as the case may be) if the will deals with foreign movables.

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Deceased dies domiciled in Deceased dies domiciled in Deceased dies domiciled in Deceased dies domiciled in Australia

AustraliaAustralia Australia

Deceased does not die Deceased does not die Deceased does not die Deceased does not die domiciled in Australia domiciled in Australiadomiciled in Australia domiciled in Australia

Australian movables Australian law applies The law of the deceased’s last domicile unless there is a dispute adjudicated upon in a foreign jurisdiction which applies the law of the

deceased’s last nationality or habitual residence and this differs from the deceased’s domicile

Australian immovables

Australian law applies Australian law applies

Foreign movables Australian law applies unless situated in a jurisdiction which does not recognise domicile but habitual residence or nationality and the deceased was not habitually resident in Australia nor an Australian national

The law of the deceased’s last domicile unless there is a dispute adjudicated upon in a foreign jurisdiction which applies the law of the

deceased’s last nationality or habitual residence and this differs from the deceased’s last domicile

Foreign immovables Foreign jurisdiction where items situated will govern unless the foreign law refers its succession laws to nationality or habitual residence and the deceased is habitually resident in Australia or an Australian national

The law of the jurisdiction in which the foreign immovables are situated or the law of the deceased’s nationality or habitual residence in

jurisdictions so applying these connecting factors

B. Do the provisions in the will (if there is one) match the inheritance rights in the various countries?

Once it is determined which law applies to each asset it is necessary to consider whether that jurisdiction allows the testator to leave that property to whomever he or she chooses, or whether the laws of that jurisdiction prescribe to whom the asset must pass.

One of the fundamentals of our common law system is that a testator has (more or less) complete testamentary freedom. The courts can set aside provision made in wills but only in particular circumstances. It is open to a testator or to leave his or her entire estate to charity without making any arrangements for their children. There have been instances in

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ten the UK quite recently where substantial estates have passed to charities and not ht e deceased’s immediate family.19

In contrast, civil law jurisdictions confer reserved rights on certain family members - sometimes the spouse but more often the children. These rights are rigid and in some cases extend to interests not only in the estate of the testator owned on his death but also to claw back assets gifted during his or her lifetime.

Most jurisdictions have a system to ensure that some measure of protection is given to the dependents of the deceased from the estate. Common law countries usually provide this by way of the court’s discretion in family provision applications. Civil law countries (such as France) provide enforceable fixed shares to the deceased’s next of kin.

In civil law countries, a matrimonial property regime exists (either by law or by contract). It is impossible to consider succession law in isolation from the matrimonial property regime. In many civil law jurisdictions marriage confers matrimonial property rights on spouses - each spouse is treated as a 50 per cent owner in all assets acquired after marriage. On his or her death a spouse can only dispose of his or her interest in one-half of the asset, not the whole asset.

This arrangement sits logically with the forced heirship rights. The spouse is protected because he or she gets half the property anyway and it is only the balance that is to be divided between the children and others.

There is no recognised matrimonial property "regime" as such in common law systems. Property may be owned jointly or severally but marriage does not change the property rights of the parties to it. A Family Court Judge may decide to rearrange property rights in an application for property settlement, but that is another matter, it is still a discretionary process, not pursuant to any principles based on a matrimonial property regime.

A surviving spouse may find that in moving from one state to another, he or she either gains a double protection (retaining marital rights and gaining succession law rights) or gains neither (having no matrimonial property rights at the outset and moving to a state which grants no succession law rights).

If the deceased moves from a separate property system (e.g. Australia) to a community property system (e.g. France) and that law (French law) then governs the succession of his or her estate, the surviving spouse may have little or no protection, having no matrimonial property under the former system and no fixed succession rights under the civil law system.

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eleven The movement of individuals can thwart even the most comprehensive of estate plans. Clients should be advised to seek advice and review their estate plan if they, or any beneficiary of their estate, relocates to another jurisdiction.

C. Which tax regime will apply to the asset and on what basis is tax levied (i.e. residency, domicile or nationality)?

Insufficient planning can result in there being a taxable estate in more than one jurisdiction, which could result in:

(i) Tax liabilities in different jurisdictions;

(ii) An element of double taxation if there is no appropriate double tax agreement between the different jurisdictions

(iii) Increased taxes - different jurisdictions may tax an event in different ways (iv) Increased professional fees to sort out the mess.

Estate planning

Estate planning lawyers should carefully consider foreign taxation consequences when drafting the will or preparing an estate plan. Wherever there is a foreign element the testator should be advised to review his or her will if that foreign element changes i.e. a testator with a domicile of origin in Australia, but a resident of the United States decides to relocate to Japan.

You may wish to consider addressing tax liability in the will. Not only may the estate be liable to tax (including CGT) but certain beneficiaries may also be subject to tax upon receiving their entitlements.

It is important to be aware of the consequences of including provisions in a will stating that “all my assets are to be sold and the proceeds divided equally between my three children.” If the deceased left $100,000 cash, a non-PPR property valued at $100,000 and shares of $100,000, the passing of the shares and the property to the beneficiaries can only occur by way of a transfer by the executor under the power of sale. This clause triggers a deemed disposal as the asset cannot “pass” to the beneficiary in accordance with s128-20(1) Income Tax Assessment Act 1997 but is transferred by the executor under the power of sale.

It may be preferable to simply state that “all my assets are to be divided equally among my children”. This provision enables the executor to decide how to divide the estate assets: by appropriation, sale or transmission. An appropriation is not a disposal.20

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There is no requirement that the beneficiary receiving the sale proceeds of an asset, sold by the executor, pay capital gains tax. The liability to pay the tax will depend on the stage of administration of the estate and who is presently entitled to income of the estate. 21

If there are a number of beneficiaries sharing the residuary estate equally and some are resident beneficiaries for tax purposes and others are not, the testator may wish to specify whether the residuary estate is to be burdened with payment of any tax on distribution to the foreign beneficiaries, or whether each beneficiary is to bear the burden of taxation from their own share of the estate.

Many of you would be aware of clauses in wills stating that a legacy is to be paid “free of all duties whatsoever”. The UK Courts have considered such clause as only operating to free legacies of UK death duties.22

If a testator wishes to ensure that all legacies are paid free of duties wherever the asset or beneficiary is located the will should specifically state the direction that the gift is free of all duties is to be of universal application.

Estate Administration

Personal representatives are increasingly being subjected to more than one taxation system in the administration of an estate. Beneficiaries are also more mobile, and quite frequently have moved countries several times between the date of the will and the date of death.

Gifts either on intestacy or pursuant to a will may trigger a tax liability in the hands of the estate prior to payment of a bequest to a beneficiary or the beneficiary itself.

There are three main issues of concern for personal representatives:- 1. the tax liability of a beneficiary receiving a distribution; 2. a foreign tax liability falling on the estate directly; and

3. a foreign tax liability of a non-beneficiary who seeks reimbursement (under the law from where the tax is due) from the estate.

A person who dies domiciled in Australia will find that Australian tax laws apply to his or her worldwide assets subject to the law of the country in which the asset is in fact situated which may also govern the foreign immovable property. It is the duty of the legal personal representative to identify all the assets in the estate and pay the liabilities.

21

Flynn, M Tax Consequences of Gifts to Charities seminar presented on behalf of STEP 19 August 2008

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thirteen In many civil law countries, such as Spain, the tax liability on the value of the estate does not lie with any personal representative but instead falls on the individual beneficiaries and is calculated by reference to both their proximity in relationship to the deceased (i.e. spouse or children as opposed to distant relatives or friends), and the value of their own independent estate.

Double taxation relief will usually be available where tax is payable in Australia and in an overseas jurisdiction. Relief may either be in accordance with the terms of a double taxation agreement or by unilateral taxation relief.

7. 7. 7.

7. Some strategiesSome strategiesSome strategies Some strategies

On the international estate planning scene there are many complex strategies and

structures that may be used to secure the orderly and tax efficient transmission of assets from one family generation to the next.

Not all clients can afford international holding structures such as the establishment of trusts, purpose trusts, voting trusts, charitable trusts, private trust companies and corporate vehicles.

Estate planning lawyers should consider the following issues:

1. where the client should hold assets; 2. in what form should those assets be held;

3. whether the client requires more than one will; and

4. how should the client structure their affairs – i.e. company, trust, foundation or other structure.

For some clients, it may be as easy as obtaining advice prior to purchasing property in an overseas jurisdiction, others may require advice on how to change their domicile or acquire residency in a particular jurisdiction or a certain nationality.

In terms of expediting the estate administration process, one of the most cost-efficient and simplest methods may be simply that the testator makes more than one will. It is quite common for a deceased to have more than one will. A deceased may execute a will with the intention (or an express declaration) that it be restricted to dealing with assets within the jurisdiction only.23

The main advantages24

of having two separate wills are:

23

Estate of Wayland [1951] 2 All ER 1041 and In the will of Verner Ulvstig [2000] QSC 66. In both instances the respective wills were construed (after consideration of the testator’s intention) as applying only to the assets within the declared jurisdictions.

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1. Where there are two separate wills, one dealing with assets in the forum and the other with assets abroad, it is only necessary to prove the former.25

The executors may obtain probate in each jurisdiction independently of the other. That is, they may simultaneously apply for probate and therefore reduce delay in administration of his estate. If a testator only has one will his/her executors must obtain probate in one jurisdiction and then a re-seal or another grant in the other.

2. Each will may be prepared in the language, and according to the formal requirements, of the jurisdiction in which the assets are located. This should reduce the need for supplementary affidavit evidence in support of a grant of probate or for judicial interpretation of a foreign document.

3. Inheritance laws may prescribe who is to receive a testator’s estate. For example, a testator dying in Sweden may only dispose of one half of his estate in that country.26

The ability to execute multiple wills may allow a testator freedom to dispose of his foreign assets as he wishes.

4. The cost of transferring assets between jurisdictions may be avoided where the will disposes of assets within the jurisdiction to local beneficiaries.27

5. A testator may avoid or reduce tax (including capital gains tax liability) by executing multiple wills.28

For example, a bequest of an Australian CGT asset to a non-resident may result in the estate paying capital gains tax which may otherwise have been avoided had the testator nominated a resident beneficiary. Non-Australian assets may also be liable to capital gains tax if they pass to a resident beneficiary. If a testator executes local wills appointing local executors and beneficiaries he may reduce the estate’s tax liability.

There are a number of traps when drafting multiple wills. Care needs to be taken to ensure the wills (and any subsequent amending codicils or other testamentary papers) in the different jurisdictions do not inadvertently revoke each other. Such revocation may bring the intestacy provisions into effect, or have unintended consequences when all of the deceased’s estate is required to be administered in accordance with the provisions of one will. Having separate wills can make matters a little clearer: they can be tailored to the jurisdiction. They do not, however, eliminate the succession problems.

25

Re Haefliger [1992] ACL Rep 395 NSW 21.

26

Verner Ulvstig [2000] QSC 66; Brule, J A, Multiple Wills (1981) 5 Estates and Trusts Quarterly 200, 215.

27

See Re Barker [1995] 2 VLR 439 at 450.

28

s104-215 Income Tax Assessment Act 1997 (“ITAA”) states that property purchased after 20 September, 1985 passing to a non-resident beneficiary is deemed to have been disposed by the deceased and is subject to capital gains tax provisions.

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6. 6.

6. CCCConclusiononclusiononclusion onclusion

Private international clients can create complex issues. Practitioners must be aware of cross-border and potential cross-border issues and consider how these issues affect a client’s estate planning objectives.

When dealing with international elements of an estate plan or estate administration it is a good idea to consult a foreign practitioner, bearing in mind that the foreign practitioner may not have any knowledge of Queensland law or common law legal systems. A basic understanding of the foreign law or an appreciation of the fundamental differences between legal systems will assist practitioners to identify potential issues and to provide proper instructions to foreign practitioners.

There is a lot of scope for misunderstanding the differences between common law systems and civil law systems. This is especially so where similar terminology obscures fundamental differences. "Succession" and "domicile" have different meanings in the civil law context from those in a common law context.

Civil law systems are often seen to be excessively rigid as to matrimonial property regimes and the heirs indefeasible inheritance shares, while common law systems may be seen to be excessively flexible in relying on discretionary provision by the courts for those family members not provided for (or adequately provided for) in the will.

A lack of proper estate planning and advice can lead to potential litigation of beneficiaries rights upon death; unnecessary tax bills for both the deceased’s estate and beneficiaries, and substantial costs in administration of the estate and trying to make sense of the testamentary chaos.

Although it may not be possible to completely avoid the international estate problems, they may be significantly diminished by educating your client as to the potential problems that may be encountered with global investments, alerting your client to the difficulties so his or her expectations may be managed and the investments properly planned, and convincing your client that the time and expense incurred in getting the investment right in the first place will be modest by comparison with the time and expense if no advice is taken at all.

Presented by: Judy Hayward

Accredited Specialist Succession Law Level 7, 344 Queen Street, Brisbane t t t t 07 3220 0998 e e e e jhayward@wills-estates.com.au

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