CROSS BOARDER ESTATES: IT’S ALL ABOUT LOCATION
The motivation behind asset acquisition and ownership can be for enjoyment or financial benefit that they bring during one’s lifetime, which are wholly reasonable objectives. However, for those seeking enduring wealth, it is essential to recognise that an effective strategy must consider the complexities of cross boarder estates. In particular, such strategy needs to anticipate the impact of death, succession, taxation and divorce may have across multiple jurisdictions.
Without robust international planning, these life events can erode even the most carefully constructed portfolios, exposing wealth to conflicting legal systems, double taxation and contested claims from different jurisdictions. Comprehensive cross boarder estate planning tailored to an individual’s circumstances ensures that wealth is protected and passed to future generations in accordance with one’s wishes, wherever assets and beneficiaries may be located.
The Blur of National Boundaries When it comes to Personal Wealth
Global businesses operate within a regulatory environment where tax rules are relatively harmonised across jurisdictions, aided by structures such as double tax treaties and mutual recognition of a place of business under established legal principles. The same level of consistency, however, is absent in the realm of private property ownership. Estate planning remains highly fragmented, with significant differences between jurisdictions in terms of succession freedoms both during life and after death, and in how property is taxed. While the EU seeks to promote harmonisation among its member states through the EU Succession Regulation (No 650/2012), these provisions do not extend to jurisdictions outside the EU.
In today’s world, national borders provide diminishing protection for wealth. Governments are increasingly asserting extraterritorial authority over individuals and their assets, extending their legal reach well beyond domestic boundaries. As a result, choosing the right jurisdiction has become as crucial as making a sound investment.
While death and divorce are neither predictable nor preventable, strategic planning is essential to protect asset value when such events occur. Careful consideration should be given to where assets are held, how they are owned, and where family members reside. Before acquiring assets in a specific jurisdiction, assess which countries may assert extraterritorial claims over them in the event of death, divorce, or taxation.
Nationality, Domicile or Residence
A country may assert jurisdiction over a matter if the factual circumstances establish a sufficient link to a person’s nationality, domicile, or residence, including that of their family members. The challenge arises because countries define and interpret these connecting factors differently, often leading to overlap and consequently, unintended tax liabilities or unplanned beneficiaries. Nationality is a recognised basis of jurisdiction in Europe, the USA, South America, and Japan, whereas residence and domicile are the primary connecting factors in the United Kingdom, Ireland, Norway, Denmark, Hong Kong, Brazil, and many Commonwealth countries. Each jurisdiction assigns varying weight to these criteria, applying its own legal tests. This creates frequent conflicts of law and jurisdictional disputes, compounded by the fact that such rules are subject to change with evolving legislation and shifting government policy.
The laws of the United Kingdom have expanded over time, increasingly drawing more individuals into its tax base and attracting divorcees seeking a favourable forum. Spain similarly casts a wide net, and Australia and France appear to be moving in the same direction. In the United States, jurisdiction is based on nationality, which allows its reach to extend across borders.
Situs of Assets
The location of an asset determines which country’s legal system and regulations will govern it, influencing matters such as succession, inheritance, and taxation.
While real property is universally recognised as immovable property, the classification of other assets—such as shareholdings, sale and purchase contracts, choses in action, debts, judgment debts, equitable interests, chattels, business partnerships, goodwill, life insurance, and bank accounts—can be less straightforward. Are they considered movable or immovable?
In some countries, only immovable property within their jurisdiction is subject to succession and taxation rules, while others make no distinction between asset types. This divergence means that assets offering tax benefits or greater freedom in succession in one jurisdiction may be treated entirely differently in another, as the situs of an asset does not always align across borders.
Other Matters to Consider
When a court determines it has jurisdiction over a person’s estate, it could also decide which law to apply in matters involving foreign substantive law or choice of law matters. In cross boarder estates, this can present complex and sometimes unexpected issues.
Liabilities of the deceased?
In common law jurisdictions, all liabilities must be settled from the estate before any residue is distributed according to a will or intestacy rules. By contrast, in many civil law jurisdictions, heirs are personally responsible for the debts of the deceased, even if those debts exceed the estate’s value.
Matrimonial Property Regimes
It is important to identify the matrimonial property regime applicable in a given country and whether it will be recognised elsewhere. This includes determining the recognition of separate or community property, or contractual arrangements between spouses. Additional measures may be necessary to protect separate property from becoming subject to forced heirship. The treatment of assets acquired before and after marriage also varies—some jurisdictions automatically merge assets upon marriage, while others maintain individual ownership rights.
Gifts and Trusts
Not all jurisdictions recognise trusts or treat lifetime gifts in the same way. In certain civil law systems, gifts can be clawed back into the estate upon death, contrary to common law rules where gifts are irrevocable even for non-heirs. For U.S. beneficiaries, distributions from non-grantor foreign trusts can attract taxes up to 100%. In jurisdictions where trusts are not legally recognised, tax systems may not be fit for purpose, leading to unintended liabilities and the absence of relief from double tax treaties.
Wills
Wills made in different jurisdictions may fail to be recognised or may inadvertently revoke one another, even with explicit revocation clauses, or through life events such as marriage or divorce. Multiple wills require careful drafting to avoid conflicts. Succession disputes frequently arise if a country’s succession laws override testamentary provisions, potentially disadvantaging certain heirs. Recognition of adopted children, illegitimate children, or unmarried partners varies between jurisdictions. Inheritance contracts may provide a means to derogate from forced heirship rights, including obligations to settle the deceased’s debts, but their effectiveness depends on local recognition.
International Succession
Conflicts of law in succession are common, as the legal standing of heirs may change depending on the jurisdiction governing the estate. This can disadvantage individuals whose entitlements differ under foreign law. In the EU, descendants may invoke public policy to claim assets outside the EU where local succession rules grant them greater rights. Determining the applicable succession law is therefore critical, as it may override a will and carry significant tax consequences. Strategic cross-border succession planning is essential to protect testamentary intentions and avoid litigation or unintended outcomes.
Key Considerations Before Acquiring Assets:
Assess potential tax implications in cross border estates.
Evaluate how the domicile, residency, and nationality of the deceased and family members affect succession and taxation.
Identify the most favourable situs for assets prior to purchase.
Determine the applicable law for both immovable and movable assets.
Consider existing double tax treaties relevant to the asset’s situs, and the domicile, nationality, and residence of the owner.
Review the treatment of gifts.
Understand recognition and tax treatment of wills, trusts, foundations, and similar legal structures.
Account for potential exit taxes.