It is important to spend a little time now to make life easier for our family when they inherit our assets, and protect them from costs and taxes where possible.
None of us like to think about the day we will shuffle off this mortal coil, or how our loved ones will cope after we have gone. However it is important to spend a little time now to make life easier for our family when they inherit our assets, and protect them from costs and taxes where possible.
Many people leave it too late, so it is best to explore your options today, to get it sorted and give you all peace of mind for the future.
Writing a Will is important, but it is not the only step. You need to establish all the facts relating to the distribution of your assets, and look for the most advantageous structures to hold them in. Being a British expatriate makes this more complex, as you need to understand both the local and UK regulations and taxes, and how they interact. You may have assets in both countries, and have heirs in a different country to the assets.
Complex family situations need particular consideration. For example, if you have remarried and have children from both marriages, or need to consider step-children. Or you may have concerns about how well your heirs will handle their inheritance. You need specialist advice on how best to structure your estate so that it is distributed, and your heirs looked after, just as you wish.
A UK Will may be effective in countries like Spain and Portugal, but must go through the probate process in the UK, after which it needs to be translated, notarised and go through probate in your country of residence, which makes for a long and costly process.
It is advisable to prepare a local Will in your country of residence relating to your local assets to smooth the legal process. Make sure it does not revoke your UK Will, or be at odds with it, which could cause delays and disputes.
Inheritance taxes and probate
Many British expatriates remain UK domiciled, regardless of living abroad for many years. This means your worldwide estate must go through probate in the UK and be assessed for UK inheritance tax. This tax is due, at 40%, on the part of your estate valued at over £325,000, or possibly £650,000 for a couple.
Ownership of an asset cannot be transferred until the tax is paid.
You also need to plan for any local inheritance taxes in your country of residence, such as Spanish and French succession tax, or stamp duty in Portugal.
You should seek specialist advice now to establish what you can do to lower or avoid the tax liabilities for your heirs, and if there are structures available which would avoid the need for probate for some assets.
When you sign up to pension schemes, you are generally asked to fill in an “expression of wish” form, which outlines how you wish your pension assets to be distributed on your death. It is important to update these forms as your circumstances change.
These wishes are carried out by the pension scheme trustees, who also have a duty to consider other potential beneficiaries especially where they challenge the ruling. There has been a rise recently in the number of disputes over payment. Where paperwork is out of date, for example if you have re-married, it can be hard for the trustees to establish what your final intentions were.
You should also include your pensions in your Will, to avoid any doubt.
If there is no expression of wishes and valid will, and no immediate family members, when the trustees distribute the proceeds to your ‘estate’ the payment would be assessable to UK inheritance tax where applicable. So the message is, do not leave it to chance and maintain a valid expression of wishes.
Bank accounts and investments
Ask your bank managers and investment advisers what happens to your accounts and funds, including joint ones, when you die. If accounts are frozen until probate is received it could make life complicated for your surviving spouse if they need the money or have pension income paid into it.
With regards investments, depending on the type of investment and how you hold them, you may be able to fill in a beneficiary form, where the investments are easily passed on to your chosen beneficiaries, often bypassing probate.
Again, keep your form up to date, especially if circumstances change.
The most important piece of advice I can give is to take specialist advice on all these issues, since getting it wrong could have consequences for your heirs. Build up a good, long-term relationship with your wealth manager. They will be aware of your situation and intentions, and be able to continue advising your family after you are gone, providing peace of mind as well as continuity of service.
15 October 2013
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.