The Importance
Of Estate Planning
For Expats
When you live overseas it can be easy to forget that if you pass away, your assets may well be subject to different rules than in your country of birth.
not understanding the rules both where you live and in your country of domicile could also mean that your beneficiaries could be taxed twice.
With careful planning it can be possible to save a lot of money, but also a lot of inconvenience for your loved ones when the need it least.
Saving your family a fortune
If motivation to protect your estate after death was ever needed, meeting people that have made large but avoidable payments to HMRC provides it. The subject of wills can be uncomfortable because imagining life continuing after our death isn't easy.
But remember, this isn't about you.
Often considered ‘boring’ in financial services and bypassed in pursuit of bigger-ticket items, statistics show that 50% of adults in the UK don't have a will, so it could be fair to assume the numbers for British expats are similar.
Wills are inexpensive to arrange (depending on circumstances) but if they're not, it's probably because of the potential savings to be made in case of your death. So many people assume ‘just a basic will’ might suffice, only to discover it's much less straightforward than they thought. Ultimately, the cost is usually relative to your wealth and well worth it.
There are few things more cost-effective or comforting than knowing your wills are arranged. So why doesn't everybody who needs one, have one? Apart from being perceived as something to do tomorrow, wills are seldom lucrative for some advisers to arrange, and that often think it's not their responsibility.
Although most people know what they are worth financially, far fewer know what the tax liabilities are should they die and this can result in huge tax bills for loved ones, and a lot of pain.
Inheritance tax law is usually complex, often unfathomable and certainly unforgiving if you get it wrong. Your estate will likely encompass everything you own, including your largest assets such as properties, investments and personal collections. It can be therefore, often easy for the more affluent to accumulate millions, meaning potentially life-changing tax bills and possible heartbreak for beneficiaries.
You don't have a will?
If you die without a will in place in the UK, your properties are distributed by court-appointed administrators in accordance with statutory rules for 'intestate succession.' They will be apportioned among your surviving spouse, children, and very likely other relatives under the law that your jurisdiction, or the jurisdiction where a property is situated, specifies.
You also remove the opportunity to gift specific items to people, or exclude any. If you don't have any loved ones left, your assets will go to the state and not any acquaintances or chosen charities you could have nominated, and that's just the tip of the iceberg.
Should you also be appointing guardians to ensure your children are cared for if no parental rights remain after your death?
If you own properties, should you clarify joint tenancies or tenancies in common?
If you're worried about becoming vulnerable during old age or illness - do you need to nominate a Lasting Power of Attorney or Last Will?. The options can be mind boggling.
Wills expert have unearthed complex issues in what many thought were straight forward cases. Subsequently, pitfalls were identified and huge loss of capital avoided. As one client explained, “watching HMRC take years of hard work from the [deceased’s] estate that was ear-marked for us would have be as painful as the tax bill itself. Not to mention the stress, time and expense of tribunals and other associated legal costs.”
Remember, this is without considering that your country of residence might also want to tax your assets.
Does all of this seem obvious?
If so, here's a couple of examples that show that anyone can get caught out.
Comedian Rik Mayall failed to arrange a valid will and when he died unexpectedly in June 2014, creating inheritance tax (IHT) issues on his £1.2m estate. When a married parent dies without a will, a portion of their assets goes directly to their children, but if the gift exceeds the ‘nil rate band’ (currently £325,000 per person) 40% IHT applies.
Rules for ‘intestacy’ changed in October 2014, so dying ‘intestate’ with children before then, his wife would have received £250,000 of his assets with the remaining assets being equally divided between her and his children. Of those remaining assets, she has only a life interest in the 50% after £250,000, meaning that she would have had to keep that amount in her estate until she died to pass on to the children. Furthermore, it would have been taxed for IHT again on her estate for anything above the prevailing nil rate band. Therefore, his children's share was more than £325,000 and taxable on his death.
Had a will been written requesting all funds went to his wife, no tax would be payable on his death. His wife could have then combined Rik’s ‘nil rate band’ with hers creating a total allowance, including the transferable amount of £650,000. Future IHT bills on her death could then have been navigated around by ‘gifting’ assets to the children whilst it still being likely she would survive another seven years.
More recently, JP Morgan had to contest a jury’s verdict to award $8 billion to the family of Max Hopper, a former American Airlines executive and pioneer of a reservation system for the airline who died in 2010 without a will in place. One might think that with a $19 million estate, Mr. Hopper might have taken time to arrange a will but he died unexpectedly without one.
Oddly, the family actually benefitted from Mr. Hopper dying intestate, but only after a long and painful 7 year battle with one of the world’s largest investment banks. While $8 billion over 7 years represents a good rate of return for the Hopper family, this case could have easily gone against them and had it done so, the legal bills could have been devastating.
Removing doubt for loved ones
As we don't usually know when we are going to die, we don't have the luxury of time to get our affairs in order, so it’s imperative to get this crucial, but cost-effective part of lives addressed while we can.
Wills are simple and inexpensive to arrange. If it does cost more than you expected it will still be value for money and your loved ones will enjoy the benefits in the future. The most value it brings is of course, peace of mind.
If you would like to know more about wills and just how easy they can be to arrange one, get in touch and we’ll be happy to help.