Introduction

For individuals owning property and having beneficiaries across different countries, especially those with significant wealth and international connections, arranging their international estate is very important. This guide offers a thorough look at planning your global estate in Australia. It covers key aspects like Australia’s estate laws, managing assets in multiple countries, tax issues, and the role of legal experts in navigating these complex situations.

Specifically, this guide will explore:

• The details of what makes a will valid in Australia.
• How enforceable foreign wills are in Australia.
• The rules for distributing an estate when there’s no will.

Furthermore, it will examine how your permanent home and tax status affect estate planning. We’ll also discuss strategies for handling assets located both within Australia and internationally. Finally, the guide will cover what inheritance and capital gains taxes mean for people who don’t live in Australia.

Understanding Australia’s Legal System for Estate Planning

Australian Estate Laws and the Roles of Different Governments

In Australia, estate planning is governed by both the national and the state/territory governments. National laws cover areas like taxes, while the laws of each state and territory control wills and how estates are managed. This division is especially important for international estate planning. Individuals with assets or beneficiaries in Australia need to be aware of both national and local regulations.

What Makes a Will Legally Acceptable in Australia

To be considered legally sound in Australia, a will must follow certain rules. These rules generally state:

• The will needs to be written down.
• The person making the will must sign every page and the last page.
• When the will-maker signs, there must be two witnesses present who are at least 18 years old.
• The witnesses must also sign the will while the will-maker is there.

These rules help make sure the will is real and can be enforced. It’s possible for wills made in other countries to be accepted in Australia. However, this can be complicated and might require going to court to prove the foreign will is valid according to the laws of the country where it was created.

Rules for Dividing Property When There’s No Will

If a person passes away without a valid will, it’s called intestacy. In these situations, Australian law provides a set of rules for how the deceased person’s property will be divided. These rules prioritize distribution to the spouse first, followed by children, and then other relatives in a specific order. For people from other countries who have assets in Australia, it’s important to understand these rules, as they will determine who inherits those assets.

Important Points for International Estate Planning in Australia

Where You Permanently Live and Your Tax Status

In Australia, two key concepts for international estate planning are your domicile and your tax residency.

• Your domicile is considered your permanent home. This is the place you intend to return to, regardless of where you currently live. Factors like your birthplace, where you reside, and your intentions play a role in determining your domicile.
• Tax residency is about your connection to Australia for tax purposes. This is usually determined by how much time you spend in Australia and your ties to the country.

It’s very important for clients from other countries to understand both their domicile and their tax residency. These factors affect how an estate is managed and taxed. For example, if you are an Australian resident for tax purposes, you will be taxed on your income and profits from asset sales worldwide. However, if you are a foreign resident, you are generally only taxed on income earned in Australia and profits from selling specific Australian assets.

Managing Assets Across Different Countries

Estate plans that involve different countries can be complicated because assets are located in various places. To handle this effectively, there are several important strategies:

• Clearly state where your assets are located in your will. This helps the people managing your estate understand the different legal requirements in each place.
• Consider using foreign trusts. Depending on your situation and the tax laws involved, trusts set up in other countries can provide tax benefits and protect your assets.
• Get expert tax advice. Because of tax agreements between Australia and other countries, it’s crucial to understand the tax implications, making professional guidance essential.

What Happens with Inheritance and Capital Gains Tax

While Australia doesn’t have a specific tax on inheritance, there is a tax called Capital Gains Tax (CGT) that might come into play when assets are inherited or transferred. CGT is a tax on the profit made when you sell an asset, and this includes property you’ve inherited.

For clients living outside Australia, understanding CGT is vital. To illustrate, if someone who doesn’t live in Australia inherits property in Australia and then decides to sell it, they might have to pay CGT on any profit made from the sale. However, there might be some exceptions or reductions available, depending on what type of asset it is and the beneficiary’s residency status. Getting professional advice on these matters is highly recommended. This ensures you follow Australian tax laws and could help reduce the amount of tax owed.

How Trusts Work in Australian Estate Planning

Different Kinds of Trusts Used in Australia

In Australia, trusts are a common tool for managing family wealth as part of estate planning. The laws around trusts are set by each state and territory. A trust operates when one person, known as the ‘trustee,’ holds assets, called ‘trust property,’ for the benefit of other people, known as ‘beneficiaries’. The trustee can also be a beneficiary. To have a valid trust, three elements are necessary:

• A trustee: The person or entity managing the assets.
• Trust property: The assets held within the trust.
• Beneficiaries: The individuals or entities who will benefit from the trust.

Australian law requires the trustee to manage the trust property in a way that benefits the beneficiaries. Any beneficiary can make sure the trustee follows this obligation. It’s important to note that the trust property is legally owned by the trustee, not the trust itself.

Trusts generally fall into two main categories:

• Discretionary trusts: Here, the trustee has the power to decide how the trust’s income and assets are distributed. This includes deciding if and when income is given out and to whom.
• Fixed trusts: In this type of trust, the beneficiaries have a set right to the trust’s income and assets, based on their specific share. The trustee must distribute these according to these pre-set entitlements.

Setting Up and Running Trusts for International Clients

A typical setup for family estate planning involves a company acting as the trustee. The beneficiaries are also the directors of this trustee company, and the family members are the beneficiaries of the trust. For instance, a mother and father might be the directors of the trustee company. The family’s assets and money are the trust property, and the mother, father, and children are the beneficiaries. Often, a company is included as a final beneficiary, as this can potentially lead to lower overall taxes on trust distributions. The main advantages of this kind of arrangement are:

• Trust assets may be separate from what is outlined in a will.
• Trust assets may be protected from the debts and divorces of beneficiaries.
• The trustee company can decide how to distribute income and assets in a way that could lower tax liabilities.

How Australia Deals with Trusts from Other Countries

Australia follows the Hague Convention on the Law Applicable to Trusts and on their Recognition, which is part of Australian law through the Trusts (Hague Convention) Act 1991. This means that if a trust is legally created according to its own governing law (either chosen by the person who set up the trust or the law it’s most closely connected to), Australia will recognise it.

Similarly, Australia acknowledges the legal existence of companies formed correctly in other countries. Specifically, Australia accepts the legal standing, membership, management, and internal operations of a foreign company, following the laws of the country where it was created. This means, for example, that foreign companies can take legal action or be sued in Australia without needing to register here, as long as they are considered separate legal entities in their home country. However, if a foreign company wants to conduct business in Australia, it must register here.

The Role of Legal Professionals in Global Estate Planning

Successfully navigating global estate planning demands a strong understanding of diverse legal systems and tax regulations. This is where the knowledge of estate planning experts specializing in international matters becomes extremely valuable. These professionals offer customized advice and assistance to ensure your estate plan aligns with your wishes and adheres to the applicable laws in every relevant country.

How Estate Planning Experts Assist International Clients

Estate planning experts offer vital support to individuals with international estate planning needs in several key areas. They can assist with:

• Creating Your Will: Professionals can help create a will that effectively manages assets both in Australia and abroad, making sure it follows Australian legal requirements and reduces the possibility of disputes.
• Setting Up and Overseeing Trusts: Experts experienced in international estate planning can advise if trusts are right for you, assist with setting them up and managing them, and ensure they meet relevant Australian trust laws.
• Understanding Tax Issues: Legal professionals can clarify and potentially minimize tax obligations related to your Australian estate. This includes understanding capital gains tax (CGT) and how inheritance might affect your beneficiaries.
• Managing Probate and Estate Matters: They can guide you through the Australian probate process, help with managing the estate, and ensure assets are distributed correctly according to your will or the rules if there’s no will.
• Preparing Power of Attorney and Guardianship Documents: Legal professionals can prepare power of attorney and guardianship documents that meet Australian requirements, allowing someone you trust to manage your affairs in Australia if you become unable to.

Working Together with Legal Experts in Other Countries

For those with property or beneficiaries in multiple countries, it’s crucial to work with legal experts in each relevant location. Estate planning experts can effectively work with their counterparts in other countries to create a joined-up and complete global estate plan. This teamwork helps resolve possible legal conflicts and ensures your estate is handled according to your wishes and the laws of each relevant country.

Steps to Develop Your Global Estate Plan in Australia

Recording Your Assets and Debts

The initial step in creating your global estate plan involves compiling a comprehensive inventory of everything you own and owe, both within Australia and internationally. This encompasses all your possessions, including property, bank accounts, investments, and personal items. Your debts, such as mortgages or loans, also need to be recorded.

Creating Your Will for Worldwide Assets

Once you have a clear understanding of your financial standing, you can proceed with drafting your will. It is essential that your will clearly specifies how your assets located in various countries should be handled. This ensures your wishes are followed for assets in different locations.

Selecting Your Executors and Trustees

Choosing appropriate individuals to act as your executor and trustee is a vital step in your global estate plan. An executor will be responsible for implementing the instructions in your will. A trustee will manage any trusts you establish. When making these selections, it is important to consider factors such as where they live, their experience, and how much you trust them.

Final Thoughts

Successfully managing your global estate plan in Australia means having a strong grasp of Australian estate regulations, tax rules, and the challenges of dealing with assets across borders. For individuals with assets or beneficiaries in more than one country, creating a solid estate plan is vital. This makes sure your estate is managed the way you want and reduces potential tax burdens for those who inherit from you.

Getting advice from experienced estate planning experts is key to developing a complete and effective global estate plan that fits your specific situation. They can offer expert insights into Australian law, work with legal professionals in other relevant countries, and guide you through the complexities of managing an estate that spans borders. If you need help with your global estate planning, contact Samoa Offshore Legal today.

Frequently Asked Questions