Life is good — mostly.
You’ve got permanent legal residence, a lovely home and significant investments in your name in foreign real estate, far from Uncle Sam’s greedy grasp. Your dear spouse — your second, after your first passed away some years ago — shares your passions: home, hearth, hobbies and the rest. The two of you are enjoying your twilight years in the peace that comes with thoughtful foresight and planning.
Or so you thought.
The one dark spot in your life is a wayward child from your first marriage, from whom you are estranged…
Beware of the Threat to Your Foreign Real Estate
Without careful planning, your foreign real estate could end up in the hands of your prodigal child, leaving your beloved spouse with little or nothing.
Under the U.S. system of common law, inherited from England, each of us is free to dispose of our personal estate as we wish, via a testamentary will. By contrast, many countries operate on the basis of “civil law,” descended from Roman law. Under these legal systems, “forced heirship” is common — and your U.S. will can’t always prevent it.
Forced heirship laws require a person to leave some proportion of his or her assets to children, by a fixed formula. It may also give a surviving spouse a share of your estate — but not always, or in ways that don’t provide a fair outcome.
Forced heirship is used in parts of Europe, including France, Germany, Spain and Portugal, as well as most of Latin America, and some Asian countries. Each country’s laws can be quite specific, and there is no way to have general knowledge of all of them.
For example, you may be able to leave your spouse all of your movable property, including bank and investment accounts. But two-thirds of your fixed property — houses and land — must go to your children.
This means, for example, that an estranged descendant — or more than one — could contest your inheritance in a foreign court, without warning, at a time when your spouse is not only bereaved, but without resources to contest it, since your accounts may be blocked pending the outcome of the court process.
If the bulk of your estate is in foreign real estate, your spouse could end up homeless, with little of your estate on which to survive. In other cases, forced heirship can apply to movable property and financial accounts as well.
If you’re relying on your U.S. will to prevent this outcome, you may be out of luck, even if it clearly states your wishes regarding foreign assets or foreign real estate. Some countries recognize the validity of foreign wills, either fully or partially — but not all. And there is no telling how a specific foreign judge will rule in any given case.
In some cases, though, it is possible to forestall an unwanted inheritance outcome by carefully constructing coordinated wills in both the U.S. and in your foreign home country. Each will covers assets under its legal jurisdiction — so-called “situs wills” — but cross-references the other. These are usually written jointly by two attorneys, one from each jurisdiction, who work together to coordinate them and ensure that they include complementary language.
But it’s important that these wills be prepared and updated simultaneously, since changes to one may revoke the other. Every time one will is updated — say, when you acquire new property — the other must also be modified to reflect the change.
It’s sometimes possible to avoid this problem by drafting a foreign “codicil” to your domestic will, covering only your property owned in a foreign jurisdiction. It specifies which will applies to which types of property, irrespective of any changes in the other will. But you need to be careful here, to avoid unintentional revocation of any portion of the original will.
No Escaping the Law
Many of us have a love/hate relationship with practitioners of the legal profession. Given that America is the lawyer and lawsuit capital of the world, that’s understandable.
But as I constantly emphasize, when it comes to asset protection and estate planning, a good, knowledgeable lawyer is your best friend. Managing your assets without one — especially when they are mixed between the U.S. and foreign jurisdictions — is like heading to sea without a compass.
Fortunately, my Council of Experts at Sovereign Confidential includes several fine attorneys who fit this bill perfectly. Make sure you consult one.
Offshore and Asset Protection Editor