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Advising Expats On The Importance Of Making A Will

BY: Paul / 0 COMMENTS / CATEGORIES: News, Will Writing

Advising Expats On The Importance Of Making A Will

To quote Scarlett O’Hara in Gone with the Wind – “death, taxes, and childbirth, there’s never a convenient time for any of them”.

When it comes to the Grim Reaper, if he comes for your client whilst they are living in a foreign country, he is not bothered about whether they have organised their affairs or not. And few situations are messier than dealing with the fall-out from someone who is domiciled abroad and dies intestate.

An estimated 5.5  million British people live overseas. According to the data, over 1.5 million reside down under (Australia and New Zealand), 761,000 in Spain, 1.2 million in North America, 240,000 living in Dubai, and 212,000 in South Africa.

For succession purposes, where a matter involves more than one legal system it is necessary to apply the conflict of laws (also referred to as private international law (PIL)) rules that determine which law of succession applies. Where the PIL rules of one jurisdiction conflict with the PIL rules of another jurisdiction, it is necessary to determine which jurisdiction can decide the matter.

Fortunately, since 17 August 2015, the rules surrounding dying intestate within the European Union have been simplified. If someone dies in an EU Member State without a Will, the rules of intestacy will be the rules of the country in which they were habitually resident as at the date of their death.

The concept of domicile

The country in which a person is domiciled refers to the nation with which they have the closest ties. A person’s domicile of origin is typically their father’s domicile as at their date of birth.   One can choose to be domiciled in a different country from that where they were born; however, a person can only be domiciled in one country at a time. To establish whether a person has changed their domicile, consideration must be given to whether they have left their domicile of origin and settled in their country of choice and whether that move is permanent.

Conceptually, this may not be difficult. But take the increasingly common case of a mixed-nationality couple, who, once their children have grown up, decide to divide their time between two jurisdictions, e.g. Australia and France; this may continue for many years until one dies without a Will. In such circumstances, establishing which domicile applies is far from straightforward .

The law of intestacy in different jurisdictions

Once domicile or habitual residence is established, the intestacy laws of that country will apply. What many British migrants fail to realise is that other countries’ laws often differ substantially from that of England and Wales.

Australia

Each state in Australia has its own intestacy laws. For example, if the deceased dies in Perth, Western Australia, allocation of the estate is governed by the Administration Act 1903 (WA). Division will depend on the value of the estate and the type and number of potential beneficiaries. Unlike English intestacy law, cohabitees do have inheritance rights under the Administration Act, if they can establish they have been in a de-facto relationship with the deceased for two years or more.

Generally, anyone over the age of 18 who is entitled to a share of the estate can apply for Letters of Administration to the Probate Office of the Supreme Court for the right to manage the estate.

United States of America

Like Australia, each State has its own laws of intestacy. However, the laws are fairly uniform for small estates. In most cases, if the estate is valued at less than $100,000, rather than file Court proceedings, family members can file a Declaration of Small Estate through a bank. In California, this can even be done through the Department of Motor Vehicles (DVA). The person filing the Declaration must swear an oath that no other person has any greater claim to the deceased’s property.

State law varies for estates over $100,000 and where there are spouses or partners, and/or children involved. For example, in New York State , in the case of an intestacy where there is a spouse but no children, the spouse receives the entire estate.  If there is a spouse and children,
the spouse inherits the first $50,000 plus half of the balance. The children* inherit everything else.

Unmarried partners have no right to inherit under New York intestacy law. This has led to a growth in ‘deathbed’ marriages. State law provides the right for family members to have such a marriage annulled if they can prove the nuptials were made specifically to achieve fraudulent financial gain.

Dubai

If an expat dies without a Will in Dubai, the default is that Sharia law will decide who inherits their estate. Sharia law is not codified, and there is no system of precedent in the UAE Courts.

Under Sharia law, if a husband dies intestate, the wife will qualify for only one-eighth of her deceased spouse’s estate. In addition, all assets (including bank accounts and shares) will be frozen until liabilities have been discharged.

Conclusion

For those advising clients who have property in the UK and are likely to acquire assets in the country they move to, it is imperative they are advised on the importance of having a valid Will in place, not only in the UK but in the jurisdiction they are moving to.

Dying intestate in the UK causes complications enough. For the survivors of expats who die without a Will, the resulting administrative and financial problems can be a nightmare – and one that is completely avoidable.

  • by TWP Main Admin
  • Aug 13, 2019

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Residential Nil Rate Band

BY: Paul / 0 COMMENTS / CATEGORIES: Will Writing

The residence nil rate band – do I qualify and should I change my Will?

A key promise in the Conservative Party’s manifesto prior to the last election was an increase in a married couples’ “nil rate band” (the amount they can ultimately pass to their children or others free of inheritance tax ) from £650,000 to £1 million. The Party had picked up on a growing disquiet that the nil rate band hadn’t kept up with house price increases which were pushing more and more families into the inheritance tax net. The standard nil rate band has been capped at £325,000 per person until 2021.

On the back of that promise, for deaths on or after 6 April 2017, the new, additional “Residence Nil Rate Band” (RNRB) will be available where the estate contains a family home (“a qualifying residence”) left to children or other “direct descendants” .

A maximum RNRB amount of £100,000 per person is available for deaths this year, increasing to £175,000 in 2020. If you double these figures for a married couple, the magic £1 million figure is reached by 2020.

A “qualifying residence” is any home that an individual lived in before they died (so buy-to-let properties, for example, are not included). If you own more than one residential property when you die, your personal representatives will need to nominate which property the relief should apply to.

At the end of the day, the property needs to end up in the hands of “direct descendants”. They are defined quite broadly in the legislation and include children (including adopted, foster and step-children), grandchildren, together with the spouses and civil partners of children and grandchildren. It does NOT include nieces and nephews, siblings or other relatives.

There are three main ways a property can be “inherited” by direct descendants. These are:

  1. Under the terms of a Will;
  2. Under the intestacy rules; and
  3. By survivorship.

The main perceived difficulty arises when the property is left to a trust, for example a discretionary will trust. In these circumstances, the property will NOT be treated as having being inherited, even if the class of beneficiaries is made up entirely of direct descendants. It should however be possible to appoint the property out of the discretionary trust to direct descendants within two years of death, so that the RNRB can be captured. Where the direct descendant has an absolute entitlement to the property (for example, under a bare trust), the property will be treated as inherited.

For estates with a net value of £2m or more, the RNRB will taper away £1 for every £2 over £2m. Therefore currently, the RNRB will not be available for an individual estate over £2.2m. There may be cases where lifetime gifting is appropriate to ensure the estate is within the limits.

Where the family home has been sold (perhaps to move into a smaller, rented property or a retirement flat or nursing home) “downsizing relief” means that the RNRB can still be claimed. The calculations involved in downsizing relief are complicated, but the essence of the relief is that you can still clam the benefit of the RNRB where you disposed of a qualifying residence on or after 8 July 2015.

Where does this leave us now in terms of estate planning; should we all be changing our Wills to ensure that the RNRB is captured? The short answer is “no”. I have already mentioned that in the case of a discretionary trust, it should be possible to appoint the property out within two years to take advantage of the RNRB. A deed of variation within two years of death, if appropriate, will achieve the same result. In any event, if you have left the property under your Will to individuals who are NOT direct descendants, I doubt those wishes will have changed by reason of the introduction of the RNRB.

Specific provision can be made for the RNRB in the Will, if this gives the testator some peace of mind. One option would be to leave assets equivalent in value to the maximum available residence nil rate band on discretionary trusts, with an accompanying letter of wishes to trustees requesting that they exercise their powers to ensure that any qualifying residential interest is inherited by direct descendants to take advantage of the residence nil rate band.

While a change in inheritance tax reliefs might be a trigger to pull our Will out of the drawer, my guess is that most Wills should prove compliant with requirements for the relief unless, of course, there was never any intention of leaving the estate to children or other “direct descendants” anyway. Only, perhaps, where (rarely) the whole estate is left to a mixture of direct descendants and others, might some redrafting be necessary to ensure that the RNRB will apply to the qualifying part.

Please contact us for more information 01325324515

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