Introduction

Mapping out an estate plan in Taiwan for folks from around the globe means keeping an eye on its unique legal maze, tricky tax rules, and the local way of doing things. This guide spills the beans on what you really need to know about sorting out estates in Taiwan from other countries, covering wills, trusts, taxes, asset safety, and those special things to look at for international clients. Readers keen to avoid trip-ups in estate planning will find this a treasure trove of essential insights and tips.

Understanding these elements is crucial for individuals with assets in Taiwan or those seeking to include Taiwan in their global estate plans. This guide will help you navigate the complexities of international estate planning in Taiwan and ensure the effective transfer of your assets to your heirs according to your wishes.

Overview of Taiwan’s Legal System for Estate Planning

Civil Law Jurisdiction

Taiwan’s legal system is based on civil law, which distinguishes it from common law jurisdictions like the United States or the United Kingdom. This means that laws are primarily codified in statutes, and judicial precedents play a less significant role in legal interpretation. In the context of estate planning, this means that the Civil Code of Taiwan is the primary source of law governing inheritance, wills, and trusts. International planners need to be familiar with the specific provisions of the Civil Code to understand how estates are administered and distributed in Taiwan.

Key Laws Governing Inheritance and Estate Planning

Several key laws govern inheritance and estate planning in Taiwan. The most important is the Civil Code, which contains detailed provisions on intestate succession, will formalities, and the concept of forced heirship. The Trust Act is another crucial piece of legislation that regulates the creation and administration of trusts, a valuable tool for estate planning. Other relevant laws include the Estate and Gift Tax Act, which outlines the tax implications of transferring assets during life or upon death, and the Act Governing the Application of Laws to Civil Matters involving Foreign Elements, which addresses the enforceability of foreign wills and the application of foreign law in cross-border estate matters. International planners must be aware of these laws to develop comprehensive and compliant estate plans for clients with assets or beneficiaries in Taiwan.

Wills and Succession Planning in Taiwan

Will Formalities Under Taiwan Law

In Taiwan, a will allows individuals to specify how their assets will be distributed after their death. Taiwan’s legal system, based on civil law, has specific requirements for creating a valid will. There are five recognized methods for making a will in Taiwan:

• Handwritten Will: The entire will must be handwritten and signed by the testator, including the date. Any changes must be noted and signed.
• Notarized Will: The testator declares their wishes orally before a notary public and at least two witnesses. The notary writes, reads, and explains the will, which is then signed and dated by all parties.
• Sealed Will: The testator signs the will, seals it in an envelope, signs the seam, and declares it as their will before a notary public and at least two witnesses. The notary records the date and declaration on the envelope, which is then signed by all parties.
• Dictated Will: The testator dictates their wishes to at least three witnesses, one of whom writes it down, reads it aloud, and explains it. The document, including the date and the writer’s name, is then signed by all parties.
• Nuncupative Will: This type of will is only valid in situations of imminent death or when other methods are impossible. It requires at least two witnesses and must be either written down by one witness or recorded on an audio device. A nuncupative will becomes invalid after three months if the testator is able to make a will using one of the other four methods.

Enforceability of Foreign Wills

Taiwan’s legal framework recognizes foreign wills under certain conditions. A foreign will is considered valid in Taiwan if it meets the legal requirements of any of the following:

• The testator’s home country at the time the will was made.
• The country where the will was made.
• The country where the testator resided at the time of death.
• The country where any real estate mentioned in the will is located.

This approach ensures that a will made according to the laws of a relevant jurisdiction is recognized and can be enforced in Taiwan.

Intestate Succession Rules

When someone dies in Taiwan without a valid will, their assets are distributed according to intestate succession rules outlined in the Taiwan Civil Code. The order of inheritance prioritizes family members, starting with:

1. Lineal descendants (children, grandchildren, etc.)
2. Parents
3. Siblings
4. Grandparents

The surviving spouse shares the inheritance with other heirs based on a defined ratio. For example, if the spouse inherits alongside the deceased’s children, they receive an equal share. If there are no other heirs, the spouse inherits the entire estate.

Taiwan also has a system of forced heirship, which guarantees a minimum share of the inheritance to certain heirs, even if a will exists. These reserved portions protect the interests of close family members and cannot be overridden by the deceased’s wishes. For instance, a child is entitled to half of what they would have received under intestate succession, regardless of the will’s provisions.

Trusts as an Estate Planning Tool in Taiwan

Types of Trusts Available

In Taiwan, trusts are governed by the Trust Act and can be established through a contract or a will. A trust established by a contract is known as a living trust, while a trust established by a will is called a testamentary trust.

For a living trust to be effective, several key elements must be clearly defined: the trust property, the purpose of the trust, and the beneficiary. The settlor must also transfer the title of the trust property to the trustee. While Taiwan law does not mandate a written contract for a living trust, it is highly recommended to avoid future disputes.

A testamentary trust, on the other hand, is a unilateral legal act that takes effect upon the settlor’s death. The validity of a testamentary trust hinges on the validity of the will itself, which must adhere to statutory requirements. As with a living trust, the trust property, purpose, beneficiary, and trustee must be clearly specified in the will.

Tax Considerations for Trusts

Taiwan’s tax laws treat testamentary trusts differently from living trusts. Property held in a testamentary trust is subject to estate tax upon the death of the testator. This means that testamentary trusts are not typically used as a tax-saving strategy in Taiwan.

Foreign trusts, however, can offer certain advantages for estate planning purposes. In addition to the benefits of regular trusts, foreign trusts often provide a higher level of confidentiality, as the settlor’s identity is generally not disclosed. Moreover, if the trust is established in a jurisdiction with a well-developed trust system, the settlor and beneficiaries can benefit from a more robust legal framework.

Cross-Border Trust Issues

When using trusts that involve multiple jurisdictions, careful consideration must be given to the potential legal and tax implications. For instance, the laws of each jurisdiction may have different rules regarding the validity and enforceability of trusts, the taxation of trust income and assets, and the reporting requirements for foreign trusts.

It is essential to seek professional legal advice from practitioners experienced in cross-border trust matters to ensure that the trust structure is compliant with the laws of all relevant jurisdictions and that the desired estate planning objectives are achieved.

Tax Considerations for International Estate Planning in Taiwan

Estate and Gift Tax Overview

Taiwan’s estate and gift tax system is relevant for individuals with assets in Taiwan, regardless of their nationality. The determining factor for taxation is whether the individual is a Taiwanese citizen and “resides in Taiwan continuously.” If these conditions are met, their worldwide assets are subject to estate and gift tax in Taiwan. Otherwise, only assets located within Taiwan are taxed. The Estate and Gift Tax Act defines “continuous residence” as:

• Having a domicile in Taiwan within two years before death or gift transfer.
• Residing in Taiwan for over 365 days within two years before death or gift transfer, even without a domicile (excluding foreigners employed by the Taiwan government for a specific period).

For estate tax, the total estate is valued based on the property value at the time of death. The tax rate is 10% on the net taxable estate amount, calculated as the gross estate value minus deductions and exemptions. These deductions and exemptions are detailed in Articles 17, 17-1, and 18 of the Estate and Gift Tax Act.

Gift tax is levied on all property transferred annually. The tax rate is 10% on the net taxable gift amount, which is the total gift value minus deductions and exemptions. Articles 20-22 of the Estate and Gift Tax Act provide details on these deductions and exemptions.

Double Taxation Treaties

Taiwan has established Double Taxation Agreements (DTAs) with 33 jurisdictions, including Australia, Canada, France, Germany, India, Japan, Singapore, Switzerland, the United Kingdom, and Vietnam. These agreements aim to prevent double taxation for individuals who are tax residents in both Taiwan and a treaty partner. DTAs can impact international estate planning by providing:

• Tax credits: Allowing individuals to offset taxes paid in one jurisdiction against their tax liability in the other jurisdiction.
• Reduced withholding tax rates: Lowering the tax rates on certain types of income, such as dividends and interest, earned by residents of one treaty partner from sources in the other partner.
• Exemptions: Providing exemptions from taxation in one jurisdiction for certain types of income or assets.

Tax Planning Strategies for Non-Residents

Non-resident individuals with assets in Taiwan can consider various tax planning strategies to minimize their tax burdens. These strategies may include:

• Gifting assets: Making lifetime gifts to beneficiaries to reduce the size of the taxable estate. Taiwan’s annual gift tax exemption allows for tax-free transfers up to a certain amount.
• Establishing trusts: Creating trusts to hold assets and potentially reduce estate tax liability. However, it’s important to note that testamentary trusts in Taiwan are subject to estate tax upon the settlor’s death.
• Utilizing life insurance: Using life insurance policies to provide liquidity for estate tax payments or to transfer wealth to beneficiaries outside of the estate.
• Structuring investments: Holding assets through foreign entities, such as holding companies, to potentially minimize Taiwan tax liabilities.

It’s crucial for non-residents to seek professional legal and tax advice to develop a tailored estate plan that aligns with their specific circumstances and objectives.

Asset Protection Strategies in Taiwan

Use of Holding Companies

Holding companies can be a valuable tool for asset protection in Taiwan. By structuring ownership of assets through a separate legal entity, individuals can shield their personal assets from potential liabilities arising from business operations or other ventures. For instance, if a business faces financial difficulties or legal claims, creditors may have limited recourse against the personal assets of the individual shareholders if those assets are held within a holding company structure.

Marital Property Considerations

Marriage has significant implications for property ownership and inheritance in Taiwan. The default marital property regime is the statutory property regime, which separates property acquired before and during the marriage. Property acquired during the marriage is generally considered jointly owned. However, couples can opt for a community-of-property regime or a separation-of-property regime through a prenuptial or postnuptial agreement. Understanding the implications of each regime is crucial for estate planning purposes, as it determines how assets will be divided in the event of divorce or death.

Creditor Protection Mechanisms

Taiwan law provides various mechanisms to protect assets from potential creditors. These mechanisms can be particularly relevant in estate planning to ensure that assets are preserved for beneficiaries. One such mechanism is the use of trusts. By placing assets in a trust, the settlor can transfer legal ownership to a trustee, who manages the assets for the benefit of designated beneficiaries. This can help safeguard assets from creditors’ claims against the settlor or beneficiaries.

Special Considerations for International Clients

Residency and Domicile Issues

Taiwan’s Estate and Gift Tax Act determines estate and gift tax liability based on an individual’s residency and domicile. If a decedent was a Taiwanese citizen and resided in Taiwan continuously, their worldwide property is subject to estate tax. However, if the decedent was a foreigner or a Taiwanese citizen residing outside Taiwan continuously, only assets located within Taiwan are subject to estate tax. For gift tax, the same principle applies. If a donor is a Taiwanese citizen residing in Taiwan continuously, their worldwide property is subject to gift tax. However, if the donor is a Taiwanese citizen residing outside Taiwan continuously or a non-Taiwanese citizen, only property located within Taiwan is subject to gift tax.

“Continuous residence” is defined as:

• Having a domicile in Taiwan within two years before death or gift transfer.
• Residing in Taiwan for over 365 days within two years before death or gift transfer, excluding foreigners employed by the Taiwan government for a specific period.

For income tax purposes, an individual is considered a Taiwan tax resident if they are domiciled in Taiwan and reside there at all times, or if they are not domiciled in Taiwan but have stayed there for 183 days or more in a calendar year.

Currency Controls and Asset Transfers

Taiwan’s central bank imposes foreign exchange limitations. Business entities have a limit of USD 50,000,000 per year, while individuals have a limit of USD 5,000,000 per year for inward and outward foreign exchange, excluding trading or service revenue. Exceeding these limits requires approval from the Central Bank.

Cultural Factors in Taiwanese Estate Planning

Cultural factors can significantly influence estate planning decisions in Taiwan. For instance, discussing death is often considered taboo, leading many individuals to die intestate (without a will). Additionally, the complex formalities involved in preparing a valid will can deter individuals from creating one. These cultural nuances highlight the importance of engaging in open and sensitive discussions with clients about their estate planning goals and addressing any cultural concerns they may have.

Conclusion

Navigating the intricacies of international estate planning involving Taiwan requires a comprehensive understanding of its legal framework, tax implications, and cultural nuances. From will formalities and inheritance laws to the strategic use of trusts and asset protection mechanisms, careful consideration of each element is crucial for ensuring the effective distribution of assets and the fulfillment of your wishes.

The information presented in this guide is for informational purposes only and should not be construed as legal advice. Given the complexities and potential implications of international estate planning, seeking guidance from experienced legal professionals specializing in Taiwanese law is essential. They can provide tailored advice, address specific concerns, and help you develop a robust estate plan that aligns with your individual circumstances and goals. Navigate the intricacies of Japanese inheritance law, ensuring that your wishes are carried out and your loved ones are protected. By understanding the intricacies of Hong Kong’s estate planning landscape, you can make informed decisions to protect your legacy and provide for your loved ones.

Frequently Asked Questions