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Estates with overseas assets

Kerstin Glomb  |  10 Nov 2009Text size  Decrease  Increase  |  
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Australia is a land of immigrants.  One in four Australians were born overseas, this is why it is quite common that a person will not only hold Australian assets but also have overseas interests. During my years of practice as a judge of a probate division at a court in Berlin, Germany I became aware that an estate comprising foreign assets can cause the deceased's family further pain and even nasty surprises.

The difficulties arise because every country has their own rules as to which law should apply, the starting point for any estate with foreign assets is to establish the appropriate principles of the "international private law". In Australia and for example also in Switzerland, France and Belgium, the applicable law is determined by the nature of the assets. 

In Australia, the applicable law for movable assets (that is, bank accounts, shares) is the law of the deceased's domicile; you need to ask "where did they have their home?". In relation to immovable assets (that is, real estate and interest in properties), the applicable law is the law of the property.

In other countries such as Germany and Italy, the rules do not divide the estate in movable and immovable assets but rather the deceased's citizenship at the date of his or her death determines the applicable law for the whole of the estate.

The important point to remember is never assume.  It is too easy to assume that the succession rules most known to you are the ones that will apply.  Bad decisions can result.  Let's look at a common example.

John, a naturalised Australian, built his wealth in Australia, but inherited a bank account in Switzerland and a property in Germany from his parents. John dies leaving a will under which he gives his estate to his wife. His domicile has always been in New South Wales. Which law determines:

Whether the will is valid
Which rules of constructions apply
Which documents are required in order to administer the estate asset?
The requirements of claims against the estate?
Whether any German or Swiss inheritance tax applies?

The starting point is the international private law of where the asset is located.  Australian assets will be subject to NSW law; that is unless he also had for example a holiday home in Queensland in which case the local state law will apply.

Under Swiss international private law the bank account (a moveable asset) will be subject to the law of John's domicile; NSW law will apply. This sounds simple, however, experience tells me that the Swiss bank may require a Swiss reseal of a Grant of Probate to enable access to the funds.  With a little care to attention, John could have set up a nomination approach to pass control simply.

Because John was an Australian citizen the real property in Germany (an immovable asset) dictates that German law must apply.  But this refers back to Australian law to determine the applicable law. As said above, the law applicable to immovable estate assets in Australia is the law of the place where the property is located - in other words, we are back to German law. The difficulties which may arise are:

-           An executor under Australian law is not the same as an executor under German law and a German court may therefore not accept an application by an executor; and

-           John’s children may make a claim against John's wife as the beneficiary of his German estate. A successful claim does not require need as under Australian law.

Further complications can exist if John's will creates a testamentary trust; such a 'device' does not exist under German law.

Let's change John's case once more: he dies without a will and leaves a de facto spouse and children.

The German intestacy law provides that a de facto partner is not a statutory beneficiary, therefore the German property would go in equal shares to John's children.

What appears to be straight forward under our legal principles, for many foreign born Australians and those who inherit foreign assets, will be potentially quite complex under the mix of laws that can apply.  Do not assume estate planning will be simple; it can be if the multiple rules are understood.

Foreign succession law is not the only trap for unwary players.  Even though death duties have been abolished in Australia, most European countries charge a inheritance tax which might have been avoided if and when proper planning took place during a person's lifetime.

Just remember that multi-cultural Australians not only have multi-cultural needs but will be subject to multi-cultural succession laws.  When in doubt about foreign assets, assume that a foreign law will apply.  One common solution will be a foreign dedicated will for the particular asset but this will often bring with it a liability for the country's inheritance tax.  This is why, if time and planning is applied, many assets are dealt with before death.  Whilst this may trigger an Australian capital gains tax, the cost of this can often be cheaper than a foreign inheritance tax, especially one that falls upon what the other country will determine are foreigners to them.

 

* Kerstin Glomb is a solicitor at Argyle Lawyers specialising in the areas of estate planning and estate administration.

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