Australians are renowned for travelling far and wide, and our diversity as a people connects us to each corner of the Earth. Globalisation has made it easier for us to explore these rich cultural connections, or even to make a move abroad.
Sometimes these ventures result in the acquisition of assets in foreign countries including real estate, investments and bank accounts. Similarly, people moving to Australia might have retained these types of assets in the country from which they moved.
Regardless of how you came to own foreign assets, it’s crucial to consider how these will be distributed after your death, in compliance with local estate planning laws.
Domicile Law and Asset Classification
In Australia, the location where the deceased lived, had a connection to or where the deceased kept a permanent residence are all relevant aspects of domicile law, which is an important factor in the administration of a deceased estate. A deceased estate is probated in the jurisdiction where the testator was domiciled, or residing, at the time of death, or where the majority of assets are held.
Overseas assets are often classified as either ‘moveable’ or ‘immoveable’. Moveable assets generally aren’t attached to land. They include things like shares, cash in overseas bank accounts and artwork. In contrast, immovable assets are typically anything attached to land, such as real estate. Generally speaking, the law of the testator’s permanent residence applies to moveable assets held outside Australia. In contrast, the relevant overseas law applies to immoveable assets such as property.
Things can get a bit complicated when dealing with other countries, since it can’t be assumed that they will recognise the concepts described above. So, while these are a good starting point, there are additional considerations to be made when treating overseas assets in the context of estate planning.
Understand jurisdictional variances in succession law and probate
Your best bet for safeguarding assets abroad is to firstly have an awareness of the specific implications of the legal system in the jurisdiction in which your assets are held. The succession laws that are applicable in Australian states don’t necessarily apply to assets overseas, depending on where they are held and what type of assets they are.
In some jurisdictions, for example, succession is viewed as a right of the heir, not a choice of the testator (Brazil, France, Spain, Italy, Germany, Switzerland, Japan, Saudi Arabia and some Caribbean Islands… we’re looking at you!). These ‘forced heirship’ provisions can dictate who inherits your assets, regardless of what your Australian Will states. Luckily, there are a few protections for Australians with certain assets (e.g. a holiday home) in some of the most popular European spots, thanks to succession regulations that have been introduced. This means that any European property owned by an Australian citizen who is resident in Australia will be dealt with under Australian succession law.
There is however a catch to how these matters can play out procedurally without adequate planning and consideration. In other words, the practicalities of distributing the real property (such as transferring title, selling and distributing cash proceeds, etc) must all be conducted in the relevant country, under its own legal system. This means that any Will purporting to deal with assets overseas should be drafted with an eye to the way in which this process is managed in the country where the assets are located.
Same goes for probate, which is what represents the legal process of distributing a person’s assets after death. The country in which your foreign assets are held will have specific laws and regulations regarding this probate process, each of which will affect the distribution of your assets differently. It may mean that a Will needs to be resealed for probate in multiple jurisdictions.
Take tax and financial implications into account
It’s also well worth paying attention to tax laws in local and foreign jurisdictions so there are no surprises when it comes to taxes imposed on foreign assets after you die. In some countries, inheritance tax can be increasingly high, with more tax payable the more distant the relationship of a beneficiary to the deceased. There may also be significant adverse tax implications in the case of an Australian Will which appoints non-beneficiary executors to hold assets on behalf of underage beneficiaries. As well as the tax regimes that come into play, it’s wise to consider any currency exchange rates (and timing of exchanges) affecting the value of your assets.
Is it best to have one Worldwide Will or separate Wills?
It’s useful to consider whether to have one worldwide Will or separate Wills, once the applicable succession arrangements and their effect on different classes of assets are determined. Consideration of applicable foreign taxes, exchange rates and probate laws may also help to make this decision clearer-cut. If having separate Wills seems favourable, a testator with assets overseas can choose to prepare a foreign Will that will be probated and administered in the foreign jurisdiction.
Ideally, having separate Wills would intend to ease the distribution of overseas assets and allow appointment of an executor in that jurisdiction to navigate these specific considerations (in the local language!). This could provide extra protection for your foreign assets, but of course wouldn’t be without its own additional costs and inherent complexities if any errors caused the existing Wills to conflict.
It’s generally advisable for there to be one global Will, which carves out assets in specific jurisdictions for local limited Wills to cover. This can often also reduce the administrative burden for beneficiaries who are left with foreign systems to navigate in the wake of your passing.
There are inevitably a few more moving parts when factoring in foreign assets, which is an essential part of your estate planning within Australia. This is before we even consider any potential language barriers and the need for translation of lengthy legal documents!
So, while there is plenty to be mindful of when deciding the future of your Swiss chalet, the right time to review any estate planning provision made for it, is now. Be sure to also communicate your wishes clearly through conversations with loved ones and through a clear and detailed Will.
Disclaimer: The content of this blog is intended to provide a general guide to the subject matter. This blog should not be relied upon as legal, financial, accounting or tax advice.