Introduction

International estate planning is crucial for individuals with assets and beneficiaries in multiple jurisdictions, particularly high-net-worth individuals and private international clients. This guide provides a comprehensive overview of international estate planning in Australia, addressing key considerations such as Australian estate laws, cross-border asset management, tax implications, and the role of Australian lawyers in navigating these complexities.

This guide will delve into the intricacies of Australian will formalities, the enforceability of foreign wills, and intestate succession rules. It will explore the impact of domicile and tax residency on estate planning, strategies for managing assets located both in Australia and overseas, and the implications of 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 and state/territory. While 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 must sign each page and the final page.
• Two witnesses, aged 18 or older, must be present when the will-maker signs.
• The witnesses 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.

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 prioritise spouses, then children, and so on, in a predetermined order. Understanding these rules is crucial for international individuals as they may affect the inheritance of assets located in Australia.

Key Considerations for International Estate Planning in Australia

Domicile and Tax Residency Issues

Domicile and tax residency are central to international estate planning in Australia. An individual’s domicile is the place considered their permanent home, even if they live elsewhere. It’s determined by factors like birth, residence, and intention to remain. Tax residency, on the other hand, is determined by physical presence in Australia and ties to the country.

For international clients, understanding both domicile and tax residency is crucial as they impact how an estate is administered and taxed. For instance, an Australian resident for tax purposes is taxed on their worldwide income and capital gains, while a foreign resident is generally taxed only on Australian-sourced income and gains from selling certain Australian assets.

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 CGT implications is crucial. For example, if a non-resident inherits Australian property and later sells it, they may be subject to CGT on the capital gain. However, 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.

Trusts and Other Planning Structures in Australian Estate Planning

Types of Trusts Used in Australian Estate Planning

Australian law recognises and commonly uses trusts 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). This definition reveals that there are three things needed for a valid trust to exist: (1) a trustee; (2) trust property; and (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 and fixed trusts. The trustee of a discretionary trust has discretion as to the distribution of the income and capital of the trust, usually as to whether income will be distributed and to whom it will be distributed. The trustee of a fixed trust has no such discretion. A fixed trust gives the beneficiaries a fixed entitlement in the income and capital of the trust in proportion to 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. A common example has a corporate trustee with mother and father as directors; the family’s capital assets and money as the trust property; and 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; and
• 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. The effect of the convention, as embodied in domestic legislation, is that trusts created in accordance with their governing law (which may be specified by the settler or is otherwise the law with which the trust is most closely connected) are recognised in Australia.

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, membership, officers and internal dealings of a foreign corporation in accordance with the laws of the place where the corporation was formed. This means, for example, that 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 and support to ensure that your estate plan aligns with your wishes and complies with the relevant laws of each relevant jurisdiction.

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.

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

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, and 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.

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 is crucial for individuals with assets or beneficiaries in multiple jurisdictions. This ensures that your estate is administered according to your wishes and minimises potential tax liabilities for your beneficiaries.

Seeking guidance from experienced Australian estate planning lawyers is essential to create a comprehensive and effective international estate plan tailored to your specific circumstances. They can provide expert advice on Australian law, collaborate with legal professionals in other relevant jurisdictions, and help you navigate the intricacies of cross-border estate administration. Reach out to PBL Law Group today if you need assistance with your international estate planning.

Frequently Asked Questions