Introduction

Arranging an estate that spans multiple countries involves specific considerations, particularly when assets or beneficiaries are linked to Australia. For individuals facing this situation, familiarity with Australia’s legal requirements for wills, trusts, and estate administration, along with how cross-border assets and potential taxes are handled, is beneficial.

This guide provides information on Australian will formalities, the recognition of foreign wills, and rules for situations where no will exists. It also touches upon domicile, tax residency, strategies for managing assets in various locations, and tax matters like inheritance and capital gains tax for non-residents.

Understanding the Australian Legal Framework for Estate Planning

Australian Estate Laws and Jurisdictions

Australia’s legal framework for estate planning is built upon a dual system:

• Federal laws govern areas like taxation
• State and territory laws hold sway over wills and estate administration

This distinction is particularly important for international estate planning, as individuals with assets or beneficiaries in Australia must navigate both levels of law.

Will Formalities and Enforceability in Australia

For a will to be valid in Australia, it must adhere to specific formalities. These typically include:

• The will must be in writing.
• The will-maker, who must be of sound mind and have ‘testamentary capacity’, must sign the will.
• Two witnesses, aged 18 or older, must be present when the will-maker signs.
• The witnesses, who should not be beneficiaries of the will, must also sign the will in the presence of the will-maker.

These formalities ensure the will’s authenticity and enforceability. Foreign wills can be recognised in Australia, but the process can be complex, often involving court proceedings to confirm their validity according to the laws of the country where the will was made.

Informal Wills and the Court’s Dispensing Power

In addition to these formal rules, Australian law includes a vital safeguard known as the court’s “dispensing power”. Under this power, a court can declare a document to be a valid will even if it does not meet the strict signing and witnessing requirements. This applies if the court is satisfied that the document truly represents the deceased person’s final testamentary intentions.

This power has been used to validate unconventional documents, including electronic files. In the landmark case of Re Yu [2013] QSC 322, the Queensland Supreme Court accepted a note typed on an iPhone as a valid will, raising the question of is an iPhone note a will, because the circumstances clearly showed it was intended to be the deceased’s final will.

However, for international estate planning, relying on this power is risky. A document accepted as an informal will in Australia is unlikely to be recognised by courts in other countries, especially those with strict legal systems. Therefore, adhering to formal execution requirements is the safest approach for anyone with cross-border assets.

Intestate Succession Rules

Intestacy is the situation where a person dies without a valid will. In such cases, Australian law dictates how the deceased’s estate is distributed.

These intestacy rules follow a predetermined order of priority:

• Spouses/partners first
• Then children
• Then other relatives according to their degree of relationship

Understanding these rules is crucial for international individuals, as they may affect the inheritance of assets located in Australia.

It is important to note that these rules are subject to change. For instance, the Succession Act 2023 (SA), which commenced on 1 January 2025, updated the intestacy rules in South Australia. Key changes included increasing the statutory legacy payable to a surviving partner from $100,000 to $120,000 and expanding the categories of eligible relatives to include the children of first cousins in certain circumstances. This highlights the importance of having a valid will to ensure your estate is distributed according to your wishes, not a government formula.

Key Considerations for International Estate Planning in Australia

Domicile and Tax Residency Issues

Domicile and tax residency are central to international estate planning, but they govern different aspects of an estate. It is crucial to understand their distinct roles.

• Tax Residency is a separate concept defined by taxation law that determines how a person is taxed in Australia. An Australian resident for tax purposes is taxed on their worldwide income and capital gains. In contrast, a foreign resident is generally only taxed on their Australian-sourced income and on gains from selling “Taxable Australian Property,” which primarily includes Australian real estate.
• Domicile is a legal concept that determines which country’s laws govern the succession of a person’s movable property (such as bank accounts, shares, and personal belongings), regardless of where that property is located. A person’s real estate (immovable property) is governed by the laws of the country where it is physically located (lex situs). Every person has a domicile of origin (usually from their father at birth) and can later acquire a domicile of choice by residing in a new country, intending to make it their permanent home.  

For international clients, understanding both domicile and tax residency is crucial, as they impact how an estate is administered and taxed. The tax implications vary significantly based on residency status:

• A foreign resident is generally taxed only on Australian-sourced income and gains from selling certain Australian assets.
• An Australian resident for tax purposes is taxed on their worldwide income and capital gains.

Cross-Border Asset Management

International estate plans often involve assets located in multiple jurisdictions. This complexity requires careful consideration of how to manage these assets effectively. Strategies for cross-border asset management include:

• Clearly specifying asset locations in the will: This clarity helps executors navigate jurisdictional variations in estate administration.
• Exploring foreign trusts: Depending on the client’s circumstances and the relevant tax laws, foreign trusts can offer tax advantages and asset protection.
• Seeking professional advice on tax implications: Tax treaties between Australia and other countries can impact how assets are taxed, making expert advice essential.

Inheritance and Capital Gains Tax Implications

Australia doesn’t have inheritance tax. However, inheriting or transferring assets may trigger Capital Gains Tax (CGT).

CGT applies to the profit made from selling an asset, including inherited property. For international clients, understanding these CGT implications is crucial.

Consider the following scenarios:

• If a non-resident inherits Australian property and later sells it, they may be subject to CGT on the capital gain.
• Certain exemptions or concessions might apply depending on the nature of the asset and the residency status of the beneficiary.

Seeking professional advice on these matters is highly recommended to ensure compliance with Australian tax laws and potentially minimise tax liabilities.

Major Changes to Foreign Resident Capital Gains Withholding (FRCGW) from 2025

A significant change impacting non-resident property owners took effect on 1 January 2025. The Foreign Resident Capital Gains Withholding (FRCGW) regime, which requires a portion of the sale price of Australian real estate to be paid directly to the Australian Taxation Office (ATO), was expanded.

The key changes are:

• The withholding rate increased from 12.5% to 15%.  
• The previous price threshold of $750,000 was removed. The 15% withholding now applies to all sales of real property by foreign residents, regardless of the value.  

This means that for any contract signed from 1 January 2025, the purchaser is legally required to withhold 15% of the purchase price at settlement and send it to the ATO. A non-resident seller can apply to the ATO for a “variation” to reduce this rate if their actual tax liability is expected to be lower.

Feature	Rule (Contracts before 1 Jan 2025)	Rule (Contracts from 1 Jan 2025)
Withholding Rate	12.5%	15%
Property Value Threshold	Applies to property valued at $750,000 or more	No threshold. Applies to all property.

CGT Event K3 for Non-Resident Beneficiaries

A significant but often overlooked tax rule, known as “CGT Event K3,” can act as a hidden inheritance tax. This event is triggered when an asset that is not Taxable Australian Property (e.g., shares in Australian public companies, managed funds) passes from a deceased estate to a beneficiary who is a non-resident for tax purposes.  

When this happens, the estate itself is deemed to have sold the asset for its market value at the date of death. The executor must then calculate the capital gain and pay the resulting tax from the estate’s funds before distributing the assets. This tax liability falls on the entire estate, meaning all beneficiaries (including Australian residents) may have their inheritance reduced to cover a tax bill triggered by a single non-resident beneficiary. This makes careful planning essential to avoid unintended consequences.  

Trusts and Other Planning Structures in Australian Estate Planning

Types of Trusts Used in Australian Estate Planning

Australian law recognises the important role of trusts in international estate planning and commonly uses them in structuring family estates. Trust law is regulated by state and territory legislation.

A trust in Australian law is a device by which one person (‘trustee’) holds property (‘trust property’) for the benefit of one or more other persons (‘beneficiaries’, of whom the trustee may be one).

Three essential elements are needed for a valid trust to exist:

1. A trustee
2. Trust property
3. Beneficiaries

Australian law imposes an equitable obligation upon the trustee to deal with the trust property for the benefit of the beneficiaries, any one of whom may enforce that obligation. The trust property is registered in the name of the trustee as the legal owner rather than in the name of the trust.

Trusts can be divided into two broad categories:

• Discretionary trusts: The trustee has discretion as to the distribution of the income and capital of the trust, usually whether income will be distributed and to whom it will be distributed.
• Fixed trusts: The trustee has no such discretion. A fixed trust gives the beneficiaries a fixed entitlement in the income and capital of the trust proportionately the interests that they hold, and the trustee must make distributions only in accordance with these entitlements.

Establishing and Managing Trusts for International Clients

A common structure used for family estate planning includes a corporate trustee, with the beneficiaries as directors of the trustee corporation and members of the family as the beneficiaries.

For example, a typical arrangement might have:

• A corporate trustee with mother and father as directors
• The family’s capital assets and money as the trust property
• The mother, father, and children as the beneficiaries

These structures commonly include a corporate beneficiary as the final beneficiary because this may result in a lower overall tax liability in respect of trust distributions.

The key benefits of this type of structure are:

• Trust property may be protected from the provisions of a will
• Trust property may be protected from creditors and spouses of beneficiaries
• The corporate trustee has discretion to distribute income and capital in a way that may minimise tax liabilities

Treatment of Foreign Trusts in Australia

Australia has ratified the Hague Convention on the Law Applicable to Trusts and on their Recognition, and given the convention the force of domestic law by the Trusts (Hague Convention) Act 1991 (Cth). The effect of the convention, as embodied in domestic legislation, is that trusts created in accordance with their governing law are recognised in Australia.

This governing law may be specified by the settler, or is otherwise the law with which the trust is most closely connected.

Australia also recognises features of foreign corporations that are duly incorporated in the jurisdiction in which they were established. In particular, Australia recognises:

• The legal status of foreign corporations
• Their membership
• Their officers
• Their internal dealings

This recognition applies in accordance with the laws of the place where the corporation was formed. As a result, foreign corporations can sue and be sued in Australia as legal entities without being registered in Australia, provided they have status as separate legal entities in their place of incorporation.

However, a foreign corporation must be registered in Australia if it wishes to carry on business in Australia.

The Role of Australian Lawyers in International Estate Planning

When dealing with international estate planning, navigating the complexities of different legal systems and tax laws becomes paramount.

This is where the expertise of Australian lawyers specialising in international estate planning becomes invaluable. These legal professionals can provide:

• Tailored guidance
• Support to ensure your estate plan aligns with your wishes
• Compliance assistance with the relevant laws of each jurisdiction

Their specialised knowledge helps bridge the gap between Australian law and international requirements, creating a cohesive estate planning strategy.

How Estate Planning Lawyers Can Help International Clients

An Australian estate planning lawyer can play a crucial role in assisting international clients with various aspects of their estate planning needs. They can help:

• Drafting a Will: A lawyer can help draft a will that effectively covers assets in Australia and overseas, ensuring it complies with Australian legal requirements and minimises potential disputes.
• Establishing and Managing Trusts: Lawyers experienced in international estate planning can advise on the suitability of trusts for your circumstances, assist with the establishment and administration of trusts, and ensure compliance with relevant Australian trust laws.
• Navigating Tax Implications: Australian lawyers can help you understand and potentially minimise tax liabilities related to your Australian estate, including capital gains tax (CGT) and inheritance tax implications for your beneficiaries.
• Probate and Estate Administration: They can guide you through the probate process in Australia, assist with estate administration, and ensure the efficient distribution of assets according to your will or the intestacy rules.
• Power of Attorney and Guardianship: Lawyers can prepare powers of attorney and guardianship documents that comply with Australian requirements, allowing a trusted individual to manage your affairs in Australia if you become unable to do so.
• Implementing Modern Planning Structures: Lawyers can advise on and implement sophisticated tools like testamentary trusts, which can protect a beneficiary’s inheritance from creditors or relationship breakdowns, and provide significant tax advantages.  

Collaborating with Overseas Legal Professionals

For individuals with assets or beneficiaries in multiple countries, collaborating with legal professionals in all relevant jurisdictions is essential.

Australian estate planning lawyers can effectively coordinate with their overseas counterparts to ensure a cohesive and comprehensive international estate plan.

This collaborative approach provides two key advantages:

• It ensures that your estate is administered according to your wishes and the laws of each relevant jurisdiction
• It helps address potential conflicts of law

Practical Steps for Creating an International Estate Plan in Australia

Documenting Assets and Liabilities

When you’re creating an international estate plan, the first step is to make a detailed list of all your assets and liabilities. This includes everything you own, both in Australia and overseas.

Your assets might include:

• Real estate
• Bank accounts
• Investments
• Personal belongings

Liabilities are any debts you owe, such as mortgages or loans.

Drafting a Will for International Assets

Once you have a clear picture of your assets and liabilities, you can start drafting your will. It’s important to have a will that specifically addresses your international assets.

This will ensure that your assets are distributed according to your wishes, even if they’re located in different countries.

Appointing Executors and Trustees

Choosing the right executor and trustee is crucial for your international estate plan. An executor is responsible for carrying out the terms of your will, while a trustee manages any trusts you’ve set up. You’ll need to consider factors like residency, experience, and trustworthiness when making these appointments.

Modern Estate Planning Tools for International Scenarios

Beyond a standard will, several other documents and structures are essential for a comprehensive international estate plan.

Testamentary Trusts for Asset Protection and Tax Efficiency

A testamentary trust is a trust created within a will that only comes into effect after you die. Lately, these have become increasingly popular for two main reasons:

1. Asset Protection: Assets held in a well-drafted testamentary trust are generally not considered the personal property of a beneficiary. This provides powerful protection against claims from creditors or, importantly, from being divided as part of a property settlement if the beneficiary goes through a divorce or relationship breakdown. This is particularly relevant given recent legislative changes, such as the Family Law Amendment Act 2024 (Cth), which affect how courts handle property settlements.  
2. Tax Advantages: Income generated by the trust can be distributed among multiple family members, including minor children, who are taxed at adult marginal rates, allowing for significant tax savings.  

Enduring Powers of Attorney and Guardianship

For expatriates or foreign nationals with Australian assets, planning for incapacity is as important as planning for death.

• An Enduring Power of Attorney allows you to appoint a trusted person in Australia to manage your financial and legal affairs (such as operating bank accounts or dealing with property) if you become unable to make decisions for yourself.  
• An Enduring Guardianship appointment covers personal, lifestyle, and medical decisions.  

Having these documents in place ensures your Australian affairs can be managed smoothly if you suffer an accident or illness overseas, without your family needing to apply to a court or tribunal for control.

Conclusion

Navigating the complexities of international estate planning in Australia requires a thorough understanding of Australian estate laws, tax implications, and cross-border considerations. Establishing a well-structured estate plan involving wills, trusts, and careful management of assets across jurisdictions is crucial for individuals with international connections to ensure their wishes are met and beneficiaries are protected.

Given the intricacies of varying legal systems and tax regulations, seeking professional legal advice is essential. Contact our expert international estate planning lawyers at PBL Law Group for tailored strategies to ensure your global assets are managed effectively according to Australian and international laws.

Frequently Asked Questions