Cross-border planning for wills, gifts and lasting powers of attorney

Posted: 12/02/2024

If you have family or assets in a jurisdiction outside of England and Wales, there will be additional considerations for your estate planning arrangements. 

Will and inheritance tax

If you have foreign assets, it is important that your advisors review your will to ensure that it will be recognised both in England and abroad, and enforce what you want to happen to your assets on your death. 

Some issues to cover with your advisors are as follows:

• The jurisdiction in which you have assets abroad will have its own laws as to wills and the administration of a person’s estate on death. They may not recognise an English will as valid, so using one as a ‘worldwide’ will may leave your foreign assets subject to uncertainty on your death. In some circumstances, it is more appropriate to have a foreign will to sit alongside your English will, dealing solely with your assets in the other jurisdiction.    
• Even if your English will is recognised as valid overseas, the terms of your will may not be enforceable. For example, some jurisdictions do not recognise trusts, so the inclusion of a trust structure within your will would be unworkable. In addition, some jurisdictions’ succession laws include forced heirship rules or matrimonial property regimes. Where forced heirship rules apply, a minimum portion of an estate may be required to be transferred to a specific category of person, known as a forced heir, which typically includes children. Matrimonial property regimes work similarly and these define what happens to assets between spouses on death. If your will conflicts with the provisions of the relevant governing law, the overseas jurisdiction may not regard your will as valid.
  Although English law allows individuals to dispose of their assets in whatever way they wish, the Inheritance (Provision for Family and Dependants) Act 1975 allows certain people to claim reasonable financial provision from a person’s estate if a will fails to make such provision. If you are not domiciled in England and Wales, this rule does not apply, leaving you with greater freedom as to your choice of the direction of your assets on death.
• If you are domiciled abroad, inheritance tax is only paid on your UK assets, but if you are domiciled (or deemed domiciled in the UK), inheritance tax will be payable on your worldwide assets. It is of vital importance to seek professional advice when assessing your domicile status. In addition to inheritance tax in the UK, there may be estate tax to pay in the overseas jurisdiction. Depending on the jurisdiction, your estate and/or your chosen beneficiaries may be liable to pay the tax. If the estate is liable, it is important to consider whether there are sufficient liquid funds to pay this liability, particularly if no double-tax treaty applies or the executors are unable to seek credit for inheritance tax paid on UK property.

The recent case of Morina and others v Scherbakova and others highlights the complexity of potentially conflicting laws (in this case heightened by family conflict), the importance of reviewing your will to ensure that it reflects your wishes (considering the applicable law), taking advice before revoking a will and, lastly, keeping the original documents in a safe place.

Gifts 

Lifetime gifts of UK property are potentially exempt transfers (PETs) (if not exempt), and you need to survive seven years from the date of the gift in order for the gifted asset/amount to pass free of inheritance tax. If you do not survive the gift by seven years, its value is brought back into your estate on your death and it will use up the first part of your inheritance tax free allowance, known as the nil rate band, which is currently £325,000. 

If you give away more than your nil rate band in the seven years before death, inheritance tax is payable on the gift at 40%, subject to taper relief, if relevant. 

If you make gifts of foreign assets, the inheritance tax position of the gift depends on your domicile status. If you are UK domiciled or deemed domiciled, gifts of foreign property are treated as PETs as above. However, if you are foreign domiciled, gifts of foreign property are not chargeable to inheritance tax.  

Depending on your personal circumstances, this can present estate planning opportunities. However, if you and your spouse do not have the same domicile, the spousal exemption does not apply in full, so it is particularly important that you take advice to best utilise the exemption.

If you are giving away assets abroad, you will need to consider whether the gifts are subject to tax in the relevant jurisdiction (during your lifetime and/or on death). In addition, if forced heirship rules apply and you make a gift of property to an individual who is not a compulsory heir, some jurisdictions have ‘claw-back’ provisions, enabling assets, or their value, to be reclaimed for the entitled persons. Before making gifts, it is therefore advisable to discuss gifting with your advisor at home and abroad.

Lasting powers of attorney (LPA)

In England and Wales, a lasting power of attorney (LPA) allows you (known as the donor) to appoint one or more people (known as attorneys) to help you make decisions, or to make decisions on your behalf, in the event that you become incapable of making them yourself.  

There are two types of LPA:

1. an LPA for financial decisions, which enables your attorneys to deal with your property and finances, for example to pay your bills or manage your property or investments; and
2. an LPA for health and welfare decisions, which enables your attorneys to make decisions on your behalf, including in relation to your medical treatment.

Practical issues to consider when appointing an attorney who lives abroad include whether they will:

• be able to obtain your original LPAs or certified copies to lodge with your financial institutions at the relevant time if the documents need to be used;
• have the relevant identification documents which will be accepted by your financial institutions;
• be able to access your accounts from a distance (eg access to online banking); and
• be able to make decisions on an urgent basis for you (particularly relevant for the sale of significant assets or medical treatment) if there is a considerable time difference.

In addition, you may want to consider that non-professional attorneys can claim their reasonable expenses, such as postage and travel costs, from your funds. These could be significant depending on your attorneys’ location and involvement.

You do not need to live in the UK or be a British citizen to put these documents in place, but their main function relates to property, and the donor’s health and welfare, when based in England and Wales.    

Currently, there is no globally recognised form of lasting power of attorney and, importantly, some jurisdictions may not recognise an English LPA, or may have their own documents or process. STEP, the world's leading organisation for private wealth professionals, has launched a ‘Global Representative Power’, which, if adopted, would provide a template for global use and, thereby, consistency for those with assets and family abroad. 

It is therefore wise to check with your advisor abroad as to whether the local jurisdiction would recognise your LPAs and, if not, what alternative measures could be put in place to ensure that someone you trust can make important decisions for you.

It is of vital importance to seek professional advice both in England and Wales and abroad. If you are unclear on your position, please get in touch, as a member of the private client and tax team will be able to discuss these matters with you.

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