Today is as good as any to start estate planning. For some, this post may be a reminder to focus on the topic they have been procrastinating for years. For others, it may be the first time to think about wealth in light of their temporality.
Getting started with estate planning
Since we regularly deal with the issue, we thought it might help share some insights on where to start. You may think that the tools for estate planning are the most critical part.
Yes, drafting a will, settling a trust, signing a life insurance policy, and assessing all the correlated legal and tax implications and subsequent tax planning for sure have value and relevance. However, we believe that your groundwork and empathy are equally important to leave a lasting legacy and ensure that your estate is distributed according to your wishes.
With such groundwork performed, you will be prepared to tackle the legal and tax challenges.
It may sound trivial to you, but a comprehensive and detailed overview of your wealth is crucial for successful estate planning.
What exactly do you own? Outline all sources of wealth and income. Then list all your assets and investments and allocate them to financial asset classes, movable properties, real estate, business and participation, credits, life insurance and annuities, pension plans, collectibles, and luxury items.
Wherever possible, this should include the original title of ownership, the current value, and past acquisition value, co-ownership information, eventual pledges, mortgages, or other third-party rights, and information about location and access to your wealth.
Assess all your pending liabilities, loans, mortgages, and tax obligations to allow for a calculation of your estate's net value.
The inventory has several benefits: it gives you an idea of how your wealth should be distributed. The discussions with your advisors will be more efficient based on a comprehensive asset overview, and ultimately it will make your successors' job more comfortable when dealing with your estate.
Digital estate planning
Many people overlook this part. It would be a mistake to do so.
We are talking about electronically stored (either online or on physical devices) information and data, and all online accounts for email, social media, platforms, and applications. Such assets may have an economic or sentimental value, and that's why you should consider them in your estate plan.
Without an estate plan, your successors may have to go through a lengthy process of proving their entitlement to your digital assets. Again an inventory is required, including the location of your digital assets and all access information.
Suppose you hold cryptocurrency, coins, or tokens, or any other form of digital cash. In that case, these digital assets require a dedicated estate planning strategy, and you may already want to structure and store them in light of future events. Who should benefit from your crypto assets may not be an expert in the asset class, and that's why you should consider simplifying the access and transfer process.
How to deal with complexity in estate planning
In our experience, there are two main types of complexity in estate planning: your wishes and your assets. You can overcome both.
Consider that you will not be there to assist people in understanding your wants, and thus we recommend to keep them concise and straightforward.
Regarding your assets, with clarity about your wishes, your trusted advisors can assist in wealth structuring in light of future events.
Define your wishes with an open mind and an open heart. If you seek legal advice to define your desires, we believe that estate planning's human element deserves much more attention than mere legal considerations.
The entire process is about your legacy and the persons that should benefit from it, in most cases, your loved ones. If you have unfinished business with some of them, it may be a perfect moment to start the discussion.
You may also want to think about fairness in your decisions, which does not necessarily mean distributing in equal parts.
Further, it would be best if you considered how your successors would perceive your arrangements. Empathy for their worries and pressures will contribute to your lasting legacy and how they will keep you in their memory.
We take it that your values have been guiding you until here, so upholding them in the estate planning process is another step towards your unique heritage. It's also a perfect moment to reflect on the purpose of wealth in your and your successors' life. Explaining the meaning wealth has for you, and the reasons for your decisions and wishes can console those affected by the loss of their loved one.
And you may want to consider which role charitable giving should play in your estate plan. Finally, your wishes should also include an advance healthcare directive and a provision for your financial representation in the event of inability.
Share your plans
With clarity about your wishes, it's time to share them with the beneficiaries.
Provided you don't want a Hollywood movie scene where an executor reads your will to first surprised and then stunningly disappointed heirs, we suggest sounding your decisions with the beneficiaries. Estate planning is a results game, and the beneficiaries will evaluate which result has been achieved.
In our experience, all too often, disappointment among heirs can lead to devastating fights within the family and result in wealth consumption due to court cases. There will be no second chance to do things right, and thus, talking about your estate plan with your loved ones gives you peace of mind to make the right choices for your lasting legacy.
You can enable people with your last will, but only if you know what they are heading for in life. We appreciate that this is an uncomfortable topic. You may evaluate if a direct or indirect approach, with each beneficiary individually or with the entire family, or with the assistance of an impartial advisor, suits your specific situation.
In most cases, the outcome for all involved parties will be comfort and ease. If not, you can still revise your estate plan.
If things are complex and complicated, lifetime gifts can be an option to simplify estate planning. Some heirs may appreciate your financial support right now.
If you doubt their lasting gratitude for some assets such as real estate, you may keep the usufruct during your lifetime while transferring ownership directly.
Just make sure that you keep documentation on lifetime gifts since the information may be needed at a later stage for legal and tax purposes.
Some practical issues
Plan well ahead and agree on the mandate with those who should assist you in the event of incapacity, medical decisions, and end-of-life care.
It would help if you let your loved ones know where and how they can access the documents. We further advise keeping a copy with your trusted advisor or notary.
Life is full of life events, and thus you should consider estate planning as an ongoing process that adapts to changes in your and your family's life. A regular review will keep your wishes and arrangements up to date and ready for execution.
The challenges of international estate planning
A mere domestic situation may be straightforward, and hopefully, the legal assessment is no big deal. However, international estate planning scenarios are usually complex and require a specific legal review. But don't take our word for it, and read on for a celebrity's real-life situation revealing the sophistication of international laws in global estate planning.
Case study on international estate planning
Johnny Hallyday, a French rock legend, died in 2017, leaving an estimated estate worth over USD 100 million. The 'French Elvis' was survived by his fourth wife, Laeticia, whom he was married to for more than 20 years. Hallyday spent his last years in his house in Los Angeles, where he sent his two young adopted daughters to school.
He executed a will under California law, leaving his wealth and intellectual property rights to a US trust, with Laeticia and their two daughters as sole beneficiaries. By doing this, he disinherited David Hallyday and Laura Smet, his two children from previous marriages.
In 2018, David and Laura contested their father's will in France, alleging that his estate should be subject to French jurisdiction under EU Succession Regulation. This is relevant since French legislation, contrary to California law, imposes clear limitations on an individual's freedom of testation and posing strict limits to disinherit children.
The importance of residence for your estate plan
His two older children argued that Hallyday was a habitual resident in France by providing documentation and evidence of where he spent his time before decease. How? Based on his Instagram posts, among other factors.
Evidence showed that Hallyday spent at least five months a year in French territory for his last three years. A French court confirmed their position and applied French law to the estate. Initially, Laeticia appealed the court's decision. However, earlier this year, the dispute was settled by agreement between the two parties.
The Hallyday tale gives us a taste of how complex estate planning for two countries can become. It can become even more challenging if a wealth owner has a global lifestyle, assets worldwide, and family members living in different jurisdictions.
So, if you tick any of these boxes, how can you arrange for a smooth transfer of wealth to your loved ones? How should you outline your wishes to avoid undesirable outcomes?
Read on, as this post highlights the key topics that you should be aware of when planning your estate.
Civil Law vs. Common Law
You need to assess which laws will apply to your estate. There are different legal systems globally: common law relies on judicial precedents to solve court cases, even if they have statutes.
Civil law is based on written statutes or legal codes, which are updated continuously; case law is a secondary source.
In common law jurisdictions, freedom of testamentary disposition means that you can pass on your wealth to anyone. In some countries, a testator has no restriction at all and may benefit even a pet.
A testator has to follow specific rules on dividing the estate in other jurisdictions, and certain heirs are entitled to an indefeasible portion, the forced estate.
Forced heirship rules
Forced heirship rules impose that a portion of the estate must pass to particular beneficiaries or classes of beneficiaries. Most civil law countries foresee them, and generally speaking, there is a requirement to provide for spouses and children.
The testator can freely dispose of only a residual portion of the estate. When drafting a will or setting up a trust, signing a life insurance policy, or doing nothing at all, you need to clarify the applicable law for your estate. And that's not always straightforward since nationality, residence, and domicile have to be considered.
Just look at the Johnny Hallyday case. Things can get increasingly complex. And it's not only about applicable law but also which courts have jurisdiction over an estate and the relevant procedures.
Conflict of law
There are several scenarios with international connecting factors: a will drafted in a foreign country, a resident or national of a country dying in a foreign country, or the estate's beneficiaries resident in a foreign country. Finally, foreign assets also lead to the question of which state has final jurisdiction over an estate and the applicable law.
Private international law identifies a case's multinational facts, allocates them to a jurisdiction, and provides rules for determining the applicable law. Countries have different international private law concepts.
Thus, two or more states may claim jurisdiction over an estate, and even with that conflict clarified, there may still be a collision of applicable laws. Last but not least, international private law deals with the recognition of foreign court decisions.
Many countries follow the unitary succession' principle, where the deceased's global assets are treated as a unity and subject to their jurisdiction. However, this principle may be pierced by scission if a country's international private law for immovable property allocates jurisdiction based on its location and for a movable property based on the deceased's residence or domicile.
Again, two or more countries may claim jurisdiction over an estate or part of it and apply their laws. Both may follow their procedures and apply their rules irrespective of the other country.
There may be a bilateral agreement between the countries to solve the issue. However, there are no typical multilateral agreements for estate matters except for testamentary dispositions' formalities.
The next topic is applicable material law that does not necessarily need to correspond to the competent jurisdiction's law. Sometimes countries allow for a professio iuris: a resident with foreign nationality may choose the country of nationality's laws as applicable.
Thus, the state of residence will apply foreign law. Countries may then grant their nationals with a foreign residence to choose between the law of their country of nationality and their residence law.
A professio iuris usually is subject to formal domestic requirements that may be further specified in a multilateral agreement, such as the Hague Convention on the Form of Testamentary Dispositions.
Unifying succession laws across EU member states
For Europe, your estate planning will go beyond national rules. Suppose you are a national or a resident or plan to become a resident or have assets located in an EU member state.
In such scenarios, you need to take into consideration the European Succession Regulation. The Regulation has been applicable for EU members for five years, except for UK, Ireland, and Denmark, which did not adopt it.
The Regulation intends to unify provisions on the jurisdiction, applicable law, and recognition and enforcement of decisions in succession matters across member states. It is also relevant for successions that are connected to non-member states.
As a general rule, jurisdiction and applicable law are based on the deceased's habitual residence, regardless of where the estate's assets are located. The courts of the deceased's habitual residence shall have jurisdiction over the estate as a whole. An exception to this principle occurs in the event of obvious predominant ties to another member state.
The central notion is the habitual residence at the time of the death, which is not defined in the Regulation and may vary from member state to member state. Courts assess all circumstances of the deceased's life during the years preceding and at the time of death and rely on several criteria to reveal a close and stable connection to a country.
The Regulation allows for a professio iuris of the law of nationality instead of the law of the state of residence. If a person has more nationalities, the testator can choose the laws of any of them.
In Johnny Hallyday's case, the French court considered various elements for their decision that France was his habitual residence. They based their conclusion on plane tickets, social security, insurance stays in hospitals and derived treatments, membership clubs, schools, Instagram posts, and witness statements. With that, his entire estate became subject to French jurisdiction and law.
To conclude on international estate planning
No matter your age or financial situation, it's always a good time to begin estate planning. While your focus may be on the legal nuts and bolts, we want this post to remind you that it's also much more than that.
Estate planning's human element
We believe that estate and wealth planning's human element deserves the most attention to create a lasting legacy and best results in providing for loved ones. Your advisors may have empathy for the topic but still mainly focus on their technical estate planning part, which is also essential to reach the envisaged outcomes.
Thus, it's up to you to shape your unique heritage, which can become the role model for the following generations. Finally, if you approach estate planning with an open mind and an open heart, we trust that you will be on a path to creating ease and comfort for all involved parties, including yourself.
International estate plans
When it comes to international estate planning, the challenging endeavor requires a thorough assessment of all elements that may impact the outcome. Nationality, residence, assets, local and foreign laws, international agreements, court procedures, and formal requirements are just some of them.
You should obtain clarity on general jurisdiction and applicable law, including a detailed evaluation of how foreign rules integrate into the general procedure for each foreign asset or tie, such as a foreign residence or economic interest.
A choice of law may allow for planning options but is subject to specific requirements. Furthermore, succession procedures and potential conflicts of law need to be assessed as otherwise disappointed heirs may engage in forum running to challenge your wishes.
A structured estate planning process
Each global estate planning case is individual, and you should base it on all current and foreseeable future facts and circumstances. Sometimes based on the assessment outcome, the only solution to avoid undesired results may be transferring assets to another location.
We advise first to clarify the legal environment, including matrimonial law and local and international tax implications. Only then you should start drafting specific legal documents; otherwise, an already complex matter may become overly complicated.
It would be best if you aimed for exact wishes that can be executed in a smooth process in a predictable legal environment to avoid Johnny Hallyday's estate's destiny.