Estate planning and inheritance: How it quickly gets complicated for expats

Making arrangements for the future - including in the event of your death - is something many people put off. Expats especially, who often have busy lives and ties to multiple countries, tend to put off estate planning to some future date when their lives are more “settled”. But what happens if this date never arrives, and no plan is put in place before someone unexpectedly passes away? Mona Monadjem, a solicitor who specialises in wills and the administration of cross-border estates, explains how things can quickly get complicated. 

Let me introduce you to Joy. Her case nicely illustrates how quickly matters of estates and inheritance can get complicated when someone’s life spans across multiple different countries. 

Joy is a South African who went to the United Kingdom 20 years ago and obtained dual British citizenship. She always said that she was planning to go back to South Africa when she retired. She got a job in Berlin and was living there for three years when she suddenly died, without a will. 

Her children live with their father in the UK. Joy and her husband were married in a traditional ceremony in South Africa, but have been separated for years. Joy owns half of a house with her husband, as well as an apartment in Germany, which she lived in with her life partner. She is the beneficiary of an inheritance in South Africa that has not been finalised. 

What happens to Joy’s estate?

Winding up Joy’s estate is going to be complicated. There are three countries and three sets of intestate succession laws that are going to be applied to the estate. As Joy was a resident and taxpayer in Germany, Germany will apply the principle of universal succession to her worldwide estate. 

However, South African and UK institutions will apply their own laws to the property that is located in their territory, unless this application is challenged in court. This doesn’t only have tax consequences. 

For South Africa and the UK, the question of the succession laws to be applied depends on Joy’s domicile. In South Africa, Joy would be considered as being domiciled in South Africa, because she had retained the intention of returning permanently to South Africa on retirement. The UK looks at domicile in much the same way. If Joy had always said that she intended to return to the UK in the future, then she would be considered to be domiciled in the UK for the purposes of the application of succession laws.

Why are succession laws so important?

Succession laws tell the heirs how the estate is to be divided between them where there is no will. So in Joy’s case, Germany tells the heirs that German laws apply to the division of the estate. 

Germany will look to see if Joy’s South African traditional marriage is recognised, as not all common law marriages are recognised in Germany. If Joy and her husband had an unabridged South African marriage certificate, recognition would not be a problem. If not, Joy’s husband may not be recognised as an heir to her estate. Joy’s life partner plays no role in the distribution of the estate. 

However, if Joy is considered to be domiciled in the UK, her life partner could bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975 if they had been maintained by Joy. 

How will the estate be divided up?

While the house in the UK may pass by survivorship, this is not the case in Germany. If Germany doesn’t recognise Joy’s husband as an heir, the children inherit Joy’s entire estate in Germany. 

While minor children may not inherit property in the UK, they may do so in Germany, subject to the approval of a legal guardian, who may be a parent or someone appointed by the local court. In South Africa, Joy’s inheritance will devolve to her estate, and the executor will have to be informed to make the necessary arrangements. 

At the same time, the UK and South Africa will tell the heirs that the estate must be divided in accordance with Joy’s domicile at death. If Joy is domiciled in South Africa, probate could be started by the heirs there and resealed in the UK. Germany does not have a probate process, as the assets and debts associated with the estate transfer directly to the heirs, unless the inheritance is disclaimed. 

What about taxation?

Taxation is tricky. While South Africa and the UK have a double tax treaty for inheritance, neither country has a one with Germany, and avoidance of double taxation on the inheritance will depend on unilateral relief. 

The payment of inheritance tax in the UK on the international estate depends on Joy’s domicile. However, the UK ignores the question of foreign domicile for inheritance tax purposes if Joy had lived in the UK for 15 of the last 20 years or had her permanent home in the UK at any time in the last three years of her life. 

For inheritance tax purposes in South Africa, SARS looks at whether the deceased was ordinarily resident in South Africa. If not, inheritance tax is only applied to South African assets. The question of double inheritance tax relief on the inheritance Joy was to receive in South Africa will also require expert advice. 

Germany will apply inheritance tax in respect of the entire estate, even though the heirs are not German residents. While the UK and South Africa will look to avoid double taxation of the estate, the question of double taxation in Germany will have to be clarified by taxation experts. 

Joy’s heirs can clear up the question of how to distribute the inheritance by entering into an property distribution agreement. However, if Joy’s marriage is not recognised in Germany, the taxation of a distribution to her “traditional husband” is not subject to the tax reliefs available to a husband. 

At any rate, this estate will need lawyers and tax advisors in all three countries to determine exactly who the heirs are deemed to be in each country and to finalise the tax returns in each country. 

If your life is half as complicated as Joys, you could probably do with some help planning the transfer of your estate to your heirs. Mona Monadjem is a practising solicitor (England and Wales) in Essen and a qualified South African attorney. She specialises in providing expert legal advice on wills, and the administration of cross border estates. She also helps clients deal with German-speaking inheritance authorities. Get in touch with Mona to arrange a consultation, either in person or remotely.