Making a will with assets in three countries
Marriage and estate planning for a multinational couple with multijurisdictional assets in three countries.
A reader writes (Note: this is a composite case, all personal information has been changed or omitted), “I’m a Bermudian resident who is five years into a second marriage (with a wonderful man, I might add). He is from the United Kingdom, originally, who came to Bermuda (a few years before I met him) after an acrimonious divorce from his first wife. They had two children together who are now teenagers. Currently, my husband owns property in both the UK and the United States, but does not have a will in any of the three countries where he has assets. He has found it emotionally difficult to put his estate plan in place which is certainly understandable. I redid my will after our marriage as I also partially support my elderly mother. We are in the process of acquiring our Bermuda home, but I am concerned that if an unexpected passing happens where I lose him, God forbid, as the widow, it will be devastating to try and sort through his finances, particularly claims that could be made against his estate (and possibly include mine). We really need to organise and settle our estate planning together.”
This is a very good reader question — one that I have seen numerous times in my many years of international financial planning.
General answer. Bear in mind that this is not specific advice for any individual’s personal financial situation. Individuals needing assistance must work with qualified international legal, tax, and finance professionals who are experienced in handling multi-jurisdictional assets and estates.
The situation. We have a four-pronged set of issues that will occur in three countries. Multiplied out, we are talking 12 serious impediments to settling an estate, not to mention the necessary, terribly sad rites of mourning, interment, and the financial and emotional drain on the survivors.
The widow will have to try to negotiate three countries’ different legal, estate, taxation, and probate regulations. Upon resolution of those processes, then, if that was not enough, the survivor will need significant cash to settle all legal claims, ie probate charges, taxes, and attorney’s fees (unless the individual wants to work her way long-distance through three countries regulation mazes to final resolution).
Further, until the estate is resolved and the survivor is designated a beneficiary, she will be unable to unlock any of the assets for liquidity, claims or distribution responsibilities. This leaves the widow, for example, in a complete Catch-22 situation. She needs cash to settle the estate, but until final probate decision, she has no right to sell assets, close bank accounts, settle estate taxation liabilities (in several jurisdictions) that generally must be paid upfront, creditor claims, or access investments to meet the estate cash deficiencies.
Let’s take these issues, one at a time.
Legal disposition of the estate. Any individual dying intestate — meaning departing this earth without a will — has decided, inadvertently or not, to allow each government and its courts to decide on the disposition of his/her assets. The individual who fully intended to provide for minor children from a prior marriage, or a disabled relative will not see his/her wishes executed. Under Bermuda estate law, intestate assets are distributed under the Succession Act 74 Part II section 5, a very complicated pro-rata disposition, depending upon the number and familial link of survivors of the deceased. http://www.bermudalaws.bm/Laws/Consolidated%20Laws/Succession%20Act%201974.pdf
In the US, intestate assets are distributed according to the probate laws of each state where, for instance, if a Georgia resident dies without having made a will, the intestacy succession laws found in the Georgia code will dictate who inherits the deceased person’s probate estate. http://wills.about.com/od/US-Intestacy-Succession-Laws/qt/Dying-Without-A-Will-In-Georgia.htm
In the UK estate laws differ again. United Kingdom: Wills, probate and inheritance — 3. If the person didn’t leave a will https://goo.T5NMhZgl/
Estate and income taxation. The intestate estate disposition is also hindered by estate tax laws — in the US for both federal and state estate taxation of the deceased’s assets. Tax liability costs and thresholds for the estate will also depend upon whether the deceased was a citizen, non-citizen, domiciled or non-domiciled, a legal resident, or non-resident status in the particular jurisdiction. A foreign national dying intestate (or not) is subject to US federal estate tax for Gross US situs assets above $60,000 at an estimated 40 per cent tax rate. Many US states also tax those same foreign national-owned US estates. See some non-residents with US assets must file estate tax returns: https://www.irs.gov/individuals/international-taxpayers/some-nonresidents-with-u-s-assets-must-file-estate-tax-returns
There is no inheritance tax in Bermuda, however, stamp duty is payable on death on the value of any “Bermuda property” (as defined in the Stamp Duties Act 1976), owned by the deceased person’s estate. All Bermuda property is subject to stamp duty, irrespective of the nationality of the owner.
The stamp duty rates are as follows:
• $50,000 and lower: 0 per cent.
• $50,001 to $200,000: 5 per cent.
•? $200,001 to $1 million: 10 per cent.
• More than $1 million: 15 per cent.
Exemptions apply to:
•?The value of any charitable gift to a charity:
• In Bermuda; outside Bermuda and certified as charitable by the appropriate minister.
• The value of any interest in an estate that passes to a spouse.
•? The value of the principal family home (available only for persons who hold “Bermuda status”, as defined in the Bermuda Immigration and Protection Act 1956 (as amended).
The UK inheritance tax has a higher threshold. See inheritance tax https://goo.gl/Q4D4vl
The final proverbial nail in the coffin is that in both the US and the UK, generally, if the non-will estate (while in the process of being adjudicated) continues to earn income, say from rental real estate or investment portfolio dividends, the beneficiary or beneficiaries will be liable to tax on those proceeds. In some cases, if the estate tax is not paid to the government by the estate itself — the beneficiaries may be considered liable for said estate taxes.
Individual beneficiaries selling US estate assets bequeathed to them may also be subject to a US capital gains tax.
And, one more thing. When a loved one passes intestate, every individual whether a designated heir or one who thinks they are entitled — comes out of the woodwork to claim their purported piece of the pie. The people you care about protecting the most may be left with nothing.
So, I implore you. Get your affairs in order now.
Guide to Wills and Estate Planning in Bermuda: Article by Vanessa Schrum, Michael Mello and Caljonah Smith
Martha Harris Myron CPA CFP JSM: Masters of Law — International Tax and Financial Services; Pondstraddler, life financial perspectives for Bermuda islanders with multinational families and international connections on the Great Atlantic Pond. Contact: email@example.com