International Estate Administration from a Canadian perspective

International Estate Administration from a Canadian perspective

International Estate Administration for Canadian executors or beneficiaries

The administration of an estate can be a complex and intimidating process at the best of times. If the estate in question has international components to it, the complexity increases and professional guidance will almost certainly be essential.  This article will provide an overview of some of the issues that arise in the context of estate administration with international elements, from the perspective of a Canadian executor or a Canadian beneficiary.

There are a number of things that can make an estate administration “international”. These include:

  • foreign assets that form part of the estate; the existence of foreign beneficiaries; the non-Canadian domicile* of the deceased at the time of death or at the time of making his/her will
  • a foreign executor
  • or some combination of the foregoing.  When an estate has one or more of these characteristics, there are certain questions that need to be addressed. The remainder of this article will be guided by these key questions and answers.

What laws apply to the estate?

As a starting point, movables in an estate are governed by the laws of domicile at the time of death, and immovables (real property and certain intangible assets) are governed by the laws of the place in which they are located.

The practical application of this concept can be much more complex than it appears at first blush, particularly if there is a will that was executed during an earlier stage of life when the deceased may have been domiciled elsewhere, or if the will only addresses part of the estate assets (partial intestacy), or where outcomes based on the laws of one country must be enforced in another country which may have its own administrative or substantive requirements.

The issue of which country’s laws apply is very important, as it determines the scheme of distribution (on intestacy) or how the will will be applied and how it may be challenged (if there is a will). This includes spousal or dependant relief claims and other challenges to a will or intestate distribution. For example, if the deceased was found to be domiciled outside of Canada at the time of death, the Canadian (provincial) laws that give preferential rights to spouses and dependents would not apply.  The issue of domicile and determining whose laws apply is therefore central and must be considered as a first step.

Note that a Canadian court may still agree to take jurisdiction and issue a grant of probate for the estate even if the deceased was not domiciled in Canada, but whether this would be appropriate is a case by case decision based largely on where the deceased’s assets are located (more on issues of probate and asset location below).

The issue of which laws apply to which aspects of an international estate can be difficult and do not always have perfect solutions, particularly when the laws of multiple countries need to work together. The cooperative efforts of professional advisors in all relevant countries is usually a necessity in order to agree on how to achieve the best practical outcomes.

Where should you apply for probate?

Where to apply for the “original grant” of probate will be driven largely by which assets in the estate require probate in order to enable the executor to deal with them, and where those assets are located.  Assets that require probate are usually assets that are subject to a third party’s control or consent, like bank accounts (the bank), land (land registry), public company shares (the company or the relevant exchange).  As such, once an inventory of assets and their locations has been taken, inquiries should be made with the foreign third parties and authorities in order to confirm their particular requirements.

Those requirements will be one of the following:

  • a certified copy of the will; a fully attested copy of the will (possibly translated) 1
  • a grant of probate in the jurisdiction of domicile; or, the original grant of probate submitted to the local courts to obtain a local court endorsement to enable local parties to rely on it; a local ancillary grant of probate (i.e., a fresh probate application in the local courts).  Which of these documents will be required in each instance will need to be confirmed with each relevant asset registry or authority.

Note that assets that do not require probate in Canada may require it in other jurisdictions.  If there is foreign real property to deal with, local probate will almost certainly be required (either re-sealing an original grant or issuing an ancillary grant locally).  Probate fees may therefore apply in more than one jurisdiction as well.

In most cases, obtaining the original grant of probate in the place of the deceased’s domicile at the time of death is advisable as that is normally where the majority of matters requiring administration emanate from.

In general, even if probate is not strictly required, it is often advisable for an executor to obtain a grant of probate anyway as it offers protection against claims against the executor.  In the context of an international estate administration this should be a material consideration for any executor.

Are there special tax issues with an international estate?

From the perspective of a Canadian executor that needs to distribute assets to foreign heirs, there are some additional tax compliance requirements.  Most importantly there is an obligation on the executor to withhold what is known as Part XIII withholding tax (referring to Part XIII of the Income Tax Act) of 25 percent, or less if reduced by a tax treaty between Canada and the other country.  If the distribution of assets consists of Canadian real property or amounts derived from it, the executor may also need to obtain a special clearance certificate from the CRA before making the distribution (a section 116 clearance certificate).

Note  this  is  different  from  the  clearance  certificate  that  the  executor should obtain from the CRA to protect him/herself from liability for tax in respect of estate distributions in any event, even domestically. 2

For assets located in other jurisdictions, local advice will be required as to whether any tax liabilities or filing obligations are applicable in respect of such assets, such as estate tax (as in the United States) or transfer taxes or stamp duties or similar.

For a Canadian beneficiary that receives distributions from a foreign estate, there are generally no tax consequences of the receipt itself.  However, an information return may still need to be filed with the CRA 3.  If the distribution results in the Canadian owning foreign assets worth CAD 100,000 or more, this will give rise to an additional filing requirement with the CRA 4.

Note that if a Canadian resident owns (or acquires by inheritance) any foreign asset that generates income, that income will be taxable in Canada and will need to be declared going forward. It is worth pointing out an opportunity for tax planning when a foreign benefactor wishes to leave an inheritance for a Canadian resident.  If the foreign benefactor is not a Canadian resident, and has not been a Canadian resident for the past 18 months prior to death 5, then they will be able to establish a trust in their will in a foreign jurisdiction (i.e., a low/no tax jurisdiction) using the inheritance.

The Canadian beneficiary(ies) can receive distributions from the trust tax free, forever.  The benefit of this structure is with respect to the income generated by the trust settlement, not the trust capital itself (which would not have been taxed in Canada in any event when transferred to the heirs).  The income generated by the trust can be accumulated, capitalized, and paid out to Canadian beneficiaries as capital on an ongoing basis, attracting no tax.

What should you do to plan your international estate in advance?

Having a well-planned estate will make its administration much easier on your executors, and will help to ensure your wishes are in fact carried out in the way you intended and not thwarted by unforeseen legal or administrative obstacles.  Some key elements of good planning that you may wish to consider are:

  1. Keep your will(s) up to date as your assets grow or change in type, value or location, or your family (or other beneficiary) circumstances change, or as your country of residence changes.  An out of date will can result in unnecessary and entirely avoidable difficulties and a distribution of your estate in a manner you did not intend.
  1. Have multiple wills where appropriate on a country by country basis, or sometimes by asset type, so they can be probated and administered locally, or so that probate can be avoided for some assets.  This can help to avoid the international attestation requirements, translation requirements, and international recognition or enforcement issues that can arise and which can be very time consuming.  If multiple wills are used, be sure they are drafted in express contemplation of one another and do not operate to invalidate the other(s).Consider preparing an explanatory note to your executor regarding how the multiple wills are intended to operate, and what formalities are expected to be required to implement them so your executor does not need to struggle to work out your intentions.
  1. Confirm whether you are subject to any forced heirship regime, as is the case for some EU nationals  (e.g. Germany, France),  and  Middle  Eastern  nationals  (e.g. Saudi Arabia, the UAE), and plan your estate with an awareness of which assets, if any, will be subject to the forced heirship regime.  You can plan your will(s) accordingly so as to avoid a conflict between your wishes and what is required by law, or, you may be able to plan to effectively exclude some or all of your assets from the regime.
  1. Keep a document that will be easily located by your heirs upon your death which sets out what documents you have prepared (i.e. your wills and any instructional memos) and where they can be located, and the lawyers or other professionals who were involved in their preparation or other estate planning.
  1. Consider establishing a trust during your lifetime which can hold some of your assets in order to avoid the probate and estate administration issues that would otherwise arise.  Since ownership of the assets will have passed to the trust already, the only administration that is necessary is to provide the trustees with proof of death, whereupon the trustees will deal with the trust assets in whatever manner is provided in the trust deed.This provides ease of administration, avoidance of probate (and probate fees), and immediate access to assets for your heirs (or limited or delayed or conditional access, according to what you had provided in the trust deed).  The use of trusts can dramatically ease the burden on your estate administrators.
TMJ Digital 069 2 1 scaled e1669304522930

James Bowden

Afridi & Angell
  1. The attestation process typically consists of notarization in the place of origin, attestation by the Ministry of Foreign Affairs or equivalent, then finally attestation (or legalization) by the consulate or embassy of the country in which the document will be used.  This can be an onerous process for those unaccustomed to it.  Consideration should be given to the translation requirements in the local jurisdiction, which may include the necessity to use only licensed translators in that jurisdiction.  It is usually more efficient to have the translation done in the foreign jurisdiction.[↩]
  2. Such clearance certificates are required under section 159(2) of the Income Tax Act, as opposed to the section 116 clearance certificates for distributions of taxable Canadian property (mainly real property) to foreign beneficiaries.[↩]
  3. Form T1142 (Information Return in Respect of Distributions from and Indebtedness to a Non-Resident Trust).[↩]
  4. Form T1135 (Foreign Income Verification Statement).[↩]
  5. Note the same tax-efficient offshore trust structure can be used during the life of the benefactor too, but they must have been non-resident for at least 5 years rather than 18 months[↩]
Controlling your Trust

Controlling your Trust

Controlling your Trust – A Matter of Some Discretion

Two common reasons for the use of trusts in estate planning are to achieve tax efficiencies and to protect assets from potential creditors and claims.  These are by no means the only reasons that trusts are utilized, but they are important benefits and are sometimes the primary focus of trust structure.  Generally speaking, trusts that provide tax and asset protection benefits need to be structured so as to grant the trustees very wide discretion as to when distributions are to be made, to which beneficiaries, in what amounts, and in which circumstances.

The language used in trust deeds usually gives trustees “absolute discretion” or “unfettered discretion” or similar.  Consider the following two examples of why discretion is important:

  • Example A (tax efficiency):  If a family trust is established with many family members as potential beneficiaries (e.g., “all of my issue”, which would include children, grandchildren, and you may include corporations owned by them, etc.), one of the goals of the trust is probably to take advantage of income splitting opportunities among the beneficiaries.  The trustee needs to be able to assess the individual tax brackets of the beneficiaries so they can “income sprinkle” across the beneficiaries in a tax efficient manner.  If the beneficiaries had fixed entitlements to a specified proportion of trust income or capital, the trustees could not achieve a tax efficient result.  Thus, discretion is needed.
  • Example B (asset protection):  Consider the same example again, but this time one of the beneficiaries has been successfully sued and his/her assets are subject to attachment by the judgment creditor.  If the beneficiary has a fixed entitlement under the terms of the trust, the creditors will be able to attach that interest as well and that beneficiary’s interest is effectively lost.  If the beneficiary’s entitlements are entirely subject to the trustee’s discretion, then the beneficiary has no vested interest at all unless and until the trustee declares each new distribution.  The trustee can confirm before making a distribution whether any beneficiary is subject to creditor claims, and if so, it can exercise its discretion in favour of another beneficiary (or none at all), until the claims are dealt with, keeping the trust assets out of the creditor’s hands.  Accordingly, discretion is again an essential component. 1

With the necessity for a trustee to be granted such broad discretion, the question is often asked:  how do you know the trustee is going to exercise its discretion in the manner you would have intended?  There are essentially three approaches available:  include terms in the trust instrument itself, issue a letter of wishes, and/or the appointment of trust “protectors”.  We will briefly discuss each in turn.

  1. Terms of the Trust Deed Some terms can be included in the trust deed itself without unduly constraining the trustee’s discretion.  These may include directions to the trustee not to make distributions to beneficiaries whose assets are subject to attachment; or a term which excludes the trust property from any beneficiary’s net family property to help protect it from being included in equalization payments upon marriage breakdown; or even a direction that requires certain minimum payments or expenses to be paid out of the trust so that the broad discretion only applies to the funds remaining after that.  A trust deed is a very flexible instrument and can be prepared with as many, or as few, specific constraints on a trustee as desired.  However, for the most part, if tax and asset protection benefits are to be maintained, the hard constraints need to be kept to a minimum.  It is more common to do the opposite; that is, explicitly oust duties that trustees would otherwise have as a matter of law that would potentially constrain them.
  2. Letter of Wishes A letter of wishes is separate from the trust deed and is just what its name suggests:  a letter from the settlor to the trustee setting out guidance for the trustee as to how the settlor wishes the trustee to exercise its discretion.  The trustee is not legally bound by the letter of wishes, but in practice trustees do give effect to them, and if a beneficiary challenges the trustee’s choices a court will take letters of wishes into account as relevant context.  Letters of wishes are sometimes very brief and provide simply that the trustees should take into account the views of another person when exercising their discretion (and that person is sometimes the settlor).  This is a potentially acceptable approach in the short term, but it has its drawbacks:  a court may find that the settlor is the person who is “in fact” making trust decisions as a de facto trustee, a finding that would almost certainly have detrimental consequences for any plan for which the trust was needed; and, upon the settlor’s death (or to whomever the letter of wishes referred), the settlor obviously then loses whatever influence he/she had.  Thoughtful, detailed, foresightful letters of wishes are strongly recommended.  Note that the trust deed should oust any default duties that trustees must comply with as a matter of law which may prevent compliance with a letter of wishes (the obligation to treat all beneficiaries equally, for example, should be ousted in the trust deed, along with others).
  3. Appointing a Protector Finally, there is the role of the trust “protector”.  A protector is someone (or multiple persons) who is granted a number of key powers in the trust deed, but who is not a trustee and, typically, has no fiduciary duties to beneficiaries. 2 They are supposed to provide oversight of trust administration and decision making from the perspective of someone close to the settlor who presumably knows what the settlor would have wanted.  Protectors are often granted powers to approve certain decisions of the trustees, to veto certain decisions, to remove and replace the trustee, or to terminate the trust, among other key powers.  The protector provides a significant check on trustee discretion.  The choice of protector is therefore important:  not only should the protector be someone close to you and who understands your wishes, they should be trustworthy and reliable, and without a conflict of interest (e.g., a beneficiary, or a spouse of a beneficiary).  Care must be taken so as not to usurp the role of the trustees altogether, either in the trust deed or in practice, or there will be a risk that the protector will be found to be the de facto trustee, with potentially disastrous consequences. 3

In addition to the above, where a trust is created as part of a plan intended to have specific tax consequences, it is common for trustees to obtain professional advice before making a distribution, to ensure that it is being made in a manner that will not upset the plan.  This is not a limit on the discretion of the trustees, per se, but it does function as one.  Sometimes, detailed tax-driven instructions are provided to the trustees by professional advisors when the trust is created, setting out guidelines for how distributions are to be made, when, and also to whom they must not be made.  Such advice has similar status to a letter of wishes, but is arguably even more likely to be adhered to as the trustees will not wish to be responsible for triggering negative tax consequences in the face of having received such advice.

The above tools to control the discretion of a trustee are very useful, but they still leave some discretion to the trustee, which is unavoidable if the structure is to be robust enough to withstand a challenge by tax authorities or disgruntled beneficiaries. 4 On a practical level, these tools are quite effective as professional trustees are motivated to serve their clients (i.e., settlors) as best they can, and to avoid litigation that may arise from ignoring letters of wishes, or professional advice, or contravening a protector’s decision.

If you have questions about whether a trust may be suitable for you, please contact us and we will be happy to help.

TMJ Digital 069 2 1 scaled e1675435086671

James Bowden

Afridi & Angell
  1. For asset protection trusts, note that it is important that the beneficiary whose interest is being protected is not also the sole trustee (or ideally even one of multiple trustees), as a court may order the beneficiary/trustee to exercise its control over the trust to satisfy the creditor’s claim.  The beneficiary must not have any control over trust decisions.[↩]
  2. The issue of whether a protector does have, or should have, fiduciary obligations to beneficiaries similar to the obligations of trustees is an unresolved issue in Canadian law.  Care should be taken to specify the settlor’s intent in the trust deed as to the duties expected of a protector.[↩]
  3. Garron Family Trust v. Her Majesty the Queen (2012 SCC 14) is the leading case in Canada on trust residency.  In that case, the courts “looked through” the exercise of powers by a protector, where the protector was in turn subject to replacement by the beneficiaries, and this was one of the reasons that court found that the beneficiaries were effectively functioning as the trust decision makers, with negative consequences for the trust in that case.[↩]
  4. This note focussed on trustee discretion with respect to distributions of trust income and capital.  It is important to bear in mind that a trustee’s discretion with respect to managing the trust’s investments can be controlled as well, to a greater degree of certainty and detail than controlling discretion as to distributions.[↩]
Covid-19 crisis – Succession planning and planning for incapacity

Covid-19 crisis – Succession planning and planning for incapacity

The second wave of Covid-19 in this fall 2020 has shown that the virus is not yet under control and that it may still take us a long time to go back to a new normality.

The pandemic has given us time to reflect, prioritize and take up projects that were on stand-by because of our busy lives. Many clients have had time to dedicate to solving family matters and have approached us to set up or review their estate planning and to establish mechanisms to protect them and their families in case of incapacity.

Broadly speaking, this includes last wills, durable powers of attorney, patient decrees or living wills and any practical or legal measures which can be set up to organise one’s affairs in the event of death or durable incapacity. Different legal tools can be used to plan and to reduce the number of difficult decisions a family has to take when facing a dramatic, unexpected event, such as the death or the sudden accident of one of its beloved ones.

 

I. Is your last will up-to-date?

A last will is a living document. As your life and business situation changes, your estate, assets, family relations etc. also change, and your last wishes may need to reflect these changes. You should therefore regularly review your last will to ensure that it corresponds to your wishes and your particular situation. Especially, you should make sure that it is adapted to any new circumstances and to the applicable legal provisions, both from a civil and a tax point of view.

In Switzerland, a testator may write a last will by hand (holographic form) or make it before a notary public (public deed form). In case of imminent risk of death, it is also possible to make an oral will by declaring the wishes in front of two witnesses and instructing them to draw up a testament in the form of a public will. This document is, however, limited in time and if the testator survives, it loses effect.

Pursuant to Swiss International Private Law, Swiss law will apply to the estate if the deceased’s last domicile was in Switzerland. That being said, any foreigner living in our jurisdiction may choose the application of the law of his/her nationality by making a professio juris (choice of law). Swiss nationals living abroad may equally chose the application of the law of their last domicile.

It should be noted that Swiss law knows forced heirship rules that e.g. protect the surviving spouse and the descendants, or the parents in the absence of spouse and descendants.

Also, in case you are married, attention must be paid to the applicable matrimonial regime as it has consequences on any succession. Upon the death of one spouse, the matrimonial regime is first dissolved to establish whether matrimonial assets fall into the estate of the deceased spouse. Then, the estate of the deceased is established and liquidated. Consequently, the amount entering into the estate will depend on the matrimonial regime dissolution.

In your estate planning, the choice of the matrimonial regime can have a substantial impact on the assets left to the surviving spouse. In Switzerland, pre-nuptial agreements are common to govern this aspect. Post-nuptial agreements are also possible with retroactive effect under certain conditions.

 

II. Is a durable power of attorney for the case of your incapacity in place?

In case you have a temporary or durable incapacity, a person or an authority will have to intervene to conduct your business and decide on your personal matters, as you will not be able to do it.

Swiss law provides that the spouse or the registered partner has to protect the interests and assist the other spouse/partner. The first can hence settle the incapacitated person’s day-to-day affairs but cannot make any key decisions. For instance, to buy or sell real estate for the incapable, an application to the Child and Adult Protection Authority is necessary.

Single persons or those without close relatives nearby capable of taking care of their affairs will have a curator appointed by the Child and Adult Protection Authority.

In order to control who should take care of your matters in case of incapacity, you have the possibility to appoint a private representative in a durable power of attorney. You will so be able to avoid the intrusion of the state, an unknown third party, or an unwanted person. This solution also prevents the nomination of an official curator who does not know you, your family, the peculiarities of your situation, and your wishes.

A representative nominated by you and of your trust will receive clear indications on how to manage your assets and personal matters and act in your best interests. Such a solution is all the more recommended in complicated family matters or for persons without close relatives.

As regards to the form, according to Swiss law, advance care directives must be made in the same form as a last will (either holographic or before a notary public).

 

III. Is your patient decree or living will available?

Most of us are afraid of losing our reasoning powers or of being unable to communicate our wishes relating to care and medical treatments but often we avoid finding a solution in advance, as the matter is not easy to address. However, family members who are confronted with a relative who is no longer able to decide on these matters are subject to enormous pressure and stress because they wish to make the right decisions, and this may be difficult or subject to different opinions.

The decision may include deciding on whether life sustaining measures should be continued. These questions are not often discussed among family members, as they relate to difficult and intimate topics. However, it is recommended and necessary to do it in order to take away this burden from family members.

In Switzerland, you can decide in advance which care and therapeutic measures you wish to receive if you are not able to make decisions by yourself. These so-called “patient decrees” can be more or less detailed and can form part of a durable power of attorney or be made separately.

You should provide your patient decree to your family doctor or to some family members to make sure they are informed. Equally, you can download it on an online platform or add a special note regarding the decree on your Swiss insurance card. In any case, several of your trustworthy relatives should know where the document can be found.

Drafting a patient decree will save your family and/or relatives from having to make painful decisions. It will also avoid having your relatives fighting over what they believe would be your true medical instructions and wishes.

 

IV. Can somebody of your trust access your bank account to ensure liquidity?

In case of an unexpected illness, sudden incapacity and/or accident, it is important that someone of your trust is able to access your accounts to ensure not only your day-to-day payments but also the settlement of extraordinary bills that may be related to the situation.

A banking power of attorney appointing a trusted person (the proxy) to act on your behalf and in your best interests should hence be signed. In order to reduce chances of abuses, you can appoint two persons with joint signatory powers.

This solutions is easy to put in place as the powers granted to the proxy can be cancelled at any time by sending a written order to the bank, provided however that you are mentally capable.

 

V. Your digital estate: is the information about your accounts/digital assets/codes etc. save and accessible?

Nowadays, most of us use Facebook, Instagram, tweeter, LinkedIn. At the same time, we do not realise the digital print we leave on the internet. We may also have cryptocurrency accounts that are only accessible with a code.

As we usually do not share our passwords/codes and we are advised not to write them down, turning off our social media accounts or accessing our cryptocurrency accounts can create a problem after one’s death.

You shall hence keep an overview of your online activities and delete any unused user accounts. At the same time, you should to make a list of all your online accounts, including their passwords and keep them in a safe place; and do not forget to inform a trustworthy person or your executor of the location of this list.

Equally, you could draw up this information in a side letter attached to your last will and indicate what you wish to be done by your heirs in this context.

Finally, automatic online payments and transfers should be listed in order to be promptly cancelled.

 

VI. Have you established an inventory of your assets?

Tax returns often serve the purpose of establishing an inventory of the deceased’s assets. However, in this document, for couples married under the ordinary regime, no distinction is made between personal and acquired properties. And this differentiation is of outmost importance as it can impact in a significant way the size of the estate.

This is why spouses, before or during marriage, often make private inventories of their assets, indicating which is acquired property and which individual, either in the form of a private agreement or before a notary public.

In the event of one of the spouses’ death, the inventory will facilitate the liquidation of both the matrimonial regime and the estate. It will also help avoiding or weakening your heirs disputing the qualification of some assets.

 

VII. Have you dealt with issues that you do not wish your family/heirs to know?

Every family has its secrets and surprises; every individual has its private matters. To protect some of your relatives or to avoid any legal dispute among your heirs, we recommend to plan ahead and implement solutions.

Creative answers can be found, for instance, to favour some heirs, to bequest non-family members (within the limits of the applicable laws).

Checklist for protecting your family and wealth

Checklist for protecting your family and wealth

How to best protect your family and wealth?

Safety of families and their wealth is of paramount importance. To best protect that you can and should take care. To know that all is well we have made a wealth and family protection checklist. When you are forced to stay at home we suggest to use the time to ensure that you provide your family with an opportunity to enjoy the accumulated wealth for many years to come.

Have a plan how to transfer your wealth to your family in an emergency scenario

Do you have a safe place to keep your ownership documents? Do your loved ones know how to find them? Make sure that you create a system of checks and balances, which will allow your heirs to find what documents you have, so they can step into ownership of assets without many years of searching.

Arrange for a medical proxy

What happens if you are incommunicado or unconscious at the hospital? Who is going to make vital business and medical decisions when you are unavailable? Medical proxy or a power of attorney given to a trusted friend, family member or a professional can be a solution.

Get another citizenship

Different countries provide different levels of protection to their citizens, including the opportunity to travel freely. Being able to act quickly should help to mitigate consequences of natural and man-made disasters alike.

Write a will

Without a will, in many countries such as Russia the fruits of your labour probably will be equally divided between a spouse, children and dependent parents. A will can change that. If you have a will, but you spend time in other countries, or have real estate abroad, or have a citizenship of another country, your old will might not cover all your assets and may not be valid in part or in whole.

Set up a family foundation or trust

A family foundation or trust will help you and your family to protect your assets from hostile parties, whilst allowing your family to enjoy the wealth. When you set up such foundation or trust, make sure a system of checks and balances is in place which allows the family to be in control, without directly controlling the trustees or board members. The choice of them is one of the most important decisions you will make about the new structure.

Check your existing structures

If your ownership documents or structures were done some time ago, please check if they are still legally sound and continue to serve your goals well.

Help others

There is so much more one can do with one’s wealth than just passing it on to the children. Dynasty trusts and dynastic foundations can ensure that wealth is preserved and enjoyed through generations. Charitable foundations can help to continue giving to the causes you care for.

Why To Incorporate Philanthropic Giving Into Your Estate Plan?

Why To Incorporate Philanthropic Giving Into Your Estate Plan?

Philanthropic giving can reduce the percentage of Inheritance Tax that must be paid on the estate and is therefore an important part of estate planning.

There are many reasons why the inclusion of philanthropic giving into an estate plan can create financial advantages, not only for the charitable beneficiaries, but also for the owner of the estate and their heirs.

People who are eligible to pay Inheritance Tax can cut this tax bill quite drastically by leaving a percentage of their estate to charity.

Incorporating philanthropic giving into an estate plan can reduce or eliminate liability for paying Inheritance Tax when done according to the proper regulations. Employing the services of a financial adviser or professional estate planner helps to ensure that both the charities and the other beneficiaries of a will are able to make the most of this legacy.

Dr Edgar Paltzer works as an attorney-at-law in Switzerland and counts estate planning among his specialist areas of expertise.

Charitable Giving Tax Benefits

Anyone who has a sizeable estate is in many jurisdictions liable to pay tax on the ‘net’ estate – that is, the value of the estate minus the debts. Any money gifted to a charity in a will is exempt from the taxable value of the estate it comes from.

In most jurisdictions, the percentage of Inheritance Tax that must be paid on a net estate can be reduced if the benefactor chooses to leave money to a charitable cause or causes.

This may mean the beneficiaries end up with slightly less money, but the overall tax bill can be reduced (and a charitable cause can also benefit, rather than the taxman). The specific rules for this can be complex, so it is always worth seeking the advice of a professional.

How to Incorporate Philanthropic Giving in a Will

There are two main ways in which philanthropic giving can be incorporated into a will. The benefactor can specify a charity or charities themselves, or, in some jurisdictions, they can simply specify an amount and allow the decision to be made by the trustees of the will.

Giving to charities through a will may include:

  • Donating cash sums;
  • Gifting a particular asset or property; or
  • Leaving the whole or a share of what is known as the residuary estate (everything left over after costs, tax and specified gifts to other benefactors).

It should be noted that when gifting assets or properties, questions of valuation may arise and that the types of assets you choose to leave to charity may require research and depend on which charity you want to benefit – some are set up to be able to receive and utilise more sophisticated assets such as real estate or privately-held securities, while others may only be able to accept cash sums. Some charities may even refuse to accept objects and properties, if these require maintenance or out-of-pocket expenses.

Specifying Use of the Gift

Some individuals who choose to incorporate philanthropy in their will prefer to be able to specify where and how their legacy will be used. If this is the case, it is best to organise this directly with the charity in question before death to ensure those wishes are reasonable and viable.

There have been previous cases of charities having to return gifts left to them in a will as they are unable to comply with the restrictions or specific conditions regarding how the gift can be used. In this regard, it is therefore again advisable to employ the services of a professional estate planner.

Dr. Edgar Paltzer works as an attorney-at-law in Switzerland and counts estate planning among his specialist areas of expertise.

Edgar Paltzer

Edgar Paltzer

Paltzer