Legacy Planning

The idea of legacy planning isn’t new. Families from the Rothschilds to the Duponts and the Kennedys have done it for a long time, and some European families have created plans that have maintained family wealth for centuries.

The idea that those of us with less substantial assets might want to organize our assets and structure our holdings so as to create a legacy of wealth that will carry forward for generations may be newer, but, in the current climate, where it is harder and harder to keep what you’ve earned, we’d say it’s critical.

The bricks and mortar of any legacy plan are the structures that hold the assets in question. The right structures are the key to minimizing inheritance taxes, wealth taxes, and transfer taxes… and those things are the key to being able to transfer wealth so that it can continue to grow over future generations.

Whether you are worried only about the next generation or you are hoping to create a generational legacy that will still be around centuries from now, your plan can become more complicated when you start internationalizing your life. Bank accounts, real estate, corporations, trusts, stocks, and physical precious metals all held in different countries can create a much more difficult to manage administrative burden very quickly. You’ve got to choose the right structures, in the right jurisdictions, remembering your big-picture goals and building in flexibility and accommodations for ongoing asset growth and diversification.

The starting point for any estate legacy plan is a will. You know that you need a will in your home country, but you may not yet have addressed the fact that you also need wills in any other jurisdiction where you own real estate, a bank account, or any other asset. This applies to every country where you own something, be it a piece of property, stocks, a bank account, or gold in a private vault. Your will from your home country won’t do you any good in any other country. The law and maybe the language will be different (even from the United States to Ireland, for example, legal terminology varies), and a local will prepared by a local attorney in accordance with local laws is the only way to cover your assets in that country.

Most countries have specific rules related to the distribution of assets when the owner of those assets dies. Many countries adhere to ancient methodologies that don’t fit in a modern world. France is the best (extremely complicated) example. Like anything bureaucratic in France, there are the rules, the exceptions to the rules, and the exceptions to the exceptions that get you back to the original rule. Die without a will in France, and your assets get distributed according to your blood line.

This means that, in the case of joint assets owned with a surviving spouse, your share will be distributed in a manner that could mean your spouse ends up with as little as one-quarter of the assets overall if you have three or more children. In truth, if you have children, your surviving spouse could technically end up with nothing. Following the rules a bit further, your spouse could, in fact, end up with nothing if you have a surviving parent and/or siblings.

Other countries also use this “follow the bloodline” method for inheritance distributions, but none have mastered the complexities of it as well as the French. The good news is that having a will or other legacy planning document in place in France can bypass the French inheritance laws. Further, if you’re a non-resident, the bloodline laws apply only to real estate, and these can be gotten around by holding your real estate in a special French entity designed specifically for this purpose (it’s called a Société Civile Immobilière, or SCI). Take possession of any real estate in France in the name of an SCI, rather than your own name or the name of some other kind of corporation, and the shares of that entity can be accounted for under the will from your country of residency.

The specifics of legacy planning for the distribution of any French real estate holdings aside, there’s a bigger picture point here. In today’s world of second wives, step-children, adopted children, and unmarried life-partners, following the bloodline doesn’t work for most people anymore. But without a proper will in each country where you hold assets, you run the risk of inheritance going to some third cousin you’ve never met rather than your adopted child (for example).

A will on its own may work for your initial planning, as you begin working to set up your plan for diversification offshore, but it’s only one tool in the tool box that you’re going to need if you intend to do more than simply open a bank account in another jurisdiction. In fact, in many cases, a bank account in another country can be a simple matter in the context of your legacy plan.

Most banks most places allow you to name a beneficiary or beneficiaries. So if you have just a single bank account in one offshore jurisdiction and no longer-term planning to coordinate, you may be able to get away without a will. But bigger picture and longer term, we’d suggest that you probably still want one covering that bank account just to be safe. What happens if one or more of your beneficiaries pre-decease you? A will could cover that.

One benefit of naming the beneficiaries of an offshore bank account directly (assuming you’re not looking for inter-generational planning) is that it does one thing a will doesn’t: It avoids probate.

Probate is the process of “proving” the will. With beneficiaries named for your bank account, all they have to do to have access to the funds in most cases is to show a death certificate. Other assets, unfortunately, must go through the probate process. Probate can take a long time and cost a lot of money.

Let’s imagine that, by the time your time has come to pass on from this world, you’ve done a great job internationalizing your life, and you hold assets in four or five countries. Furthermore, you have wills in place in each country designating who gets what when you’re gone.

All of that is great, but it won’t get around probate. Your heirs will still have to go through the probate process (assuming the assets are above the minimum probate thresholds, which are typically low) in each country where assets are being transferred. You have to decide whether you want some extra administration and costs on your side while you’re still alive or whether you want to pass the administration and costs on to your heirs.

To achieve a Rothschild level of planning (that is, multi-generational legacy planning), you’ll have to do more than put wills in place in every country where you hold assets. We’d say this isn’t an issue, though, unless you have a lot of assets to work with. In other words, your entire estate plan might be accomplished by making sure you have a will in place in every jurisdiction where you own some asset.

We address further aspects of establishing a legacy plan in our Offshore Living Letter. For now, start by getting your ducks in a row in your home country… and expect to need a will in every country where you plant a flag.