Introduction

Understanding where you call home plays a big role in planning your estate internationally. It helps figure out which laws will apply to your things once you’re no longer around. People need to know what ‘domicile’ means and the different kinds there are. If you’re living in another country or have stuff all over the place, knowing about domicile is really important. It’ll help make sure everything goes the way you want it to after you’re gone. This guide helps keep your international stuff safe and makes tricky legal things a bit easier. Stick around to find out how it all works, so you can have peace of mind about what happens to your assets.

What is Domicile?

Domicile is critical in international estate planning as it establishes the jurisdiction for obtaining a grant of probate or administration and identifies the individuals eligible to apply for such a grant in that jurisdiction.

Every individual must have a domicile, but only one domicile can be held at any given time. It is important to distinguish domicile from tax residency. In common law jurisdictions such as Australia, the UK, and New Zealand, the relevant law is based on the deceased’s place of residence. Conversely, many non-common law countries determine domicile based on the deceased’s nationality or religion.

Types of Legal Domicile

Domicile is classified into three main types, as outlined by common law and statutes:

Domicile of Origin

This domicile is assigned at birth. For example, a child born within marriage takes the domicile of the father, while a child born outside of marriage takes the domicile of the mother.

Domicile of Choice

A domicile of choice is established when an individual changes their residence with the intention of making that new location their permanent or indefinite home. This type of domicile can be chosen by anyone without a legal incapacity.

Domicile by Operation of Law

This domicile is determined by legal regulations. Examples include:

• An infant’s domicile follows that of their parents and changes as the parents’ domicile changes.
• A married woman can establish her domicile, separate from her husband.
• The legal age for establishing an independent domicile is set at 18 years or upon marriage.

If you are a resident who has always lived in Australia, you will maintain your Australian domicile even when living abroad, unless you decide to permanently settle in another country.

Domicile vs Residence: Understanding the Differences

Aspect	Domicile	Residence
Definition	Domicile refers to the country that a person treats as their permanent home and has a substantial connection to.	Residence refers to the place where an individual lives for a significant period.
Characteristics	Domicile is considered the individual’s true, fixed, and permanent home. Even if a person lives in another country for many years, their domicile remains their original home unless they take explicit steps to change it. To establish a new domicile, an individual must not only reside in a new location but also intend to remain there permanently or indefinitely. A person can have only one domicile at a time.	Residence is primarily determined by where an individual lives and spends a significant amount of time. It is possible for an individual to have multiple residences in different countries. Residence can be temporary or long-term but does not necessarily imply a permanent connection to the location.
Permanence and Intention	Domicile involves an intention to permanently reside in a specific location.	Residence is based on physical presence, without necessarily intending to stay permanently.
Number and Flexibility	A person can have only one domicile at a time, and it is harder to change.	It is possible for an individual to have multiple residences, and these can change more easily based on where the individual lives.
Taxation	Domicile often determines the inheritance and estate taxes that apply.	Residence affects liability for income tax and capital gains tax purposes on worldwide income and assets.
Legal Jurisdiction	The laws of the domicile country typically govern matters of estate administration and succession.	Legal matters can be influenced by residence based on physical presence in a country.
Reporting Requirements	Domicile is primarily stable and less likely to change frequently.	Different reporting requirements for assets, income, and estate matters can apply based on residence.

Importance of Domicile in International Estate Planning

Domicile is a critical factor in international estate planning because it determines which country’s laws will govern the distribution of someone’s estate after they die. This is especially important because the rules can differ significantly from one country to another.

For those with ties to multiple countries, understanding and establishing domicile can be complicated but essential. The laws of the country where a person is considered to be domiciled will impact how their estate is handled, which can affect everything from who inherits the estate to how much tax must be paid.

For example, even if someone lives in a country without inheritance taxes, if they are considered domiciled in another country that does have these taxes, their entire global estate could be taxed by that country after they die. Because of these complexities, getting professional advice is crucial to navigate these rules effectively and ensure that the estate is planned according to the individual’s wishes and legal requirements.

How to Determine Your Domicile?

Domicile, essentially, refers to your legal permanent home—the place where you intend to live indefinitely.

The determination of domicile can be illustrated through the English case concerning the estate of Anthony Shaffer (Morgan v Cilento [2004] EWHC 188 (CH)). Shaffer, originally from England, moved to Queensland, Australia in 1975, where he later married and settled. Despite regular visits back to England and personal connections there, the High Court of England and Wales concluded that his domicile was Queensland at his death. Key factors included his relocation of personal assets to Australia, significant investments in the local community, and his declared intent on official documents to live indefinitely in Australia.

When an Australian resident works overseas for an extended period, the domicile test often comes into play:

• If there is no permanent home established abroad, and significant ties remain in Australia, the individual is typically still considered a resident under the domicile test.
• Relevant factors include the length and nature of the stay overseas, whether an established home exists abroad, and ongoing connections to Australia.

Determining your domicile involves evaluating where you genuinely intend to establish your permanent home. This decision significantly affects your estate planning and tax obligations, particularly in a global context. For accurate assessment and planning, consulting with legal and tax professionals is essential to navigate these complex areas effectively.

Potential Complications of Incorrect Domicile Status

Incorrect domicile status can have significant complications in international estate planning, primarily because domicile status determines which jurisdiction’s laws apply to an individual’s estate at the time of their death. Here are the potential complications:

1. Tax Implications: An incorrect domicile status can result in unexpected or excessive tax liabilities. For instance, if a person is incorrectly determined to be domiciled in a jurisdiction with high inheritance or estate taxes, their estate could face hefty tax bills that could have been avoided.
2. Legal Challenges: Domicile status affects the validity and enforcement of wills and estates. If the domicile is incorrectly assigned, there could be legal challenges from heirs or beneficiaries contesting the will or trust, which can lead to prolonged and costly litigation.
3. Complexity in Estate Administration: Differing laws across jurisdictions regarding estate settlement can complicate the administration of the estate. This includes differences in probate procedures, recognised forms of wills, and rules regarding intestacy (dying without a will).
4. Asset Distribution: Incorrect domicile status might lead to an unintended distribution of assets. For example, some jurisdictions have forced heirship rules that mandate a portion of an estate must go to certain relatives, which might not align with the deceased’s wishes as expressed in their will.
5. Compliance Issues: Estate planners and executors might face difficulties in complying with the legal and tax requirements of the incorrect domicile, potentially leading to penalties or sanctions.
6. Impact on International Assets: For estates that include assets in multiple countries, incorrect domicile can complicate the legal standing and tax treatment of foreign-held assets, potentially leading to double taxation or the inability to legally transfer assets upon death.

To mitigate these issues, thorough domicile determination should be conducted, considering factors such as the duration and intent of residency, location of main home and family, and future intentions regarding residency.

Know Your Domicile for Cross-Border Estate and Tax Planning: Seek Expert Advice Today!

The complexities of domicile, from its various types to its distinction from residence, significantly impact how your estate will be managed and taxed. By grasping these concepts, you can ensure that your estate is distributed according to your wishes and in compliance with relevant laws. To navigate these intricacies effectively, seeking professional legal and tax advice is essential. For expert guidance on international estate planning and to ensure your cross-border assets are protected, contact our law firm today.