Some key considerations
For New Zealanders with overseas assets, ensuring your estate planning arrangements are in order requires careful thought and consultation with us and a tax expert here in New Zealand, as well as in the countries in which those assets are located. We outline some of the key legal considerations, highlighting potential issues that may arise if these factors are not properly addressed.
Succession in different countries
New Zealanders enjoy a reasonable degree of freedom in how their wills are drafted and to whom they leave their assets. This is, however, not always the case in countries (such as France and The Netherlands) that have ‘forced heirship’ rules. This commonly means that an estate is divided into two parts. One part is distributed to family according to specific rules, and the other part can be dealt with in a will.
Different countries often have different rules for property which is immovable (such as land) and property which is moveable (such as shares or bank accounts). This principle is known as ‘scission.’ It means that succession to land and immovable property is governed by the law in the country where your property is situated, whereas succession to movable property is governed by the law of your last place of domicile.
For people who are, for example, domiciled in New Zealand but own property in France, if your house in France is left to a friend, French succession law will apply as the house is immovable property. Whether such a gift can be validly made will be determined under French law.
Multiple wills
Not only are there differences in succession laws in different countries, but there can be different taxes applying to property and estates in those countries. For people with immovable assets in multiple countries, there should be consultation with experts to determine whether separate wills are required for each country.
Back to the above French example: there should be one will for New Zealand assets, and a French will should be drafted by a French lawyer that applies to the French assets.
There are, however, traps when multiple wills are signed. The wording is critical and, most importantly, it is essential multiple wills do not inadvertently revoke each other.
A case in 2021[1] illustrates what can happen if proper care is not taken. Beverly McLean signed two wills: an earlier one applying to her New Zealand assets, and a later one applying to her South African assets. Despite her instructions emailed to her lawyer that the two wills were to deal only with the assets in each respective country, the court confirmed that the later South African will inadvertently revoked the earlier New Zealand will as it stated, ‘I, [name] revoke all previous testamentary dispositions and declare the following to be my Last Will.’ As a result, all of the assets in the estate passed under the South African will.
The clause which featured in the above case is a common clause in a will. However, where a will-maker has multiple wills dealing with assets in different countries, the clause is not appropriate and should not be used.
Tax implications
Wills can have surprising tax consequences. The choice of executor can be important, and overseas beneficiaries may need to pay tax on their share of an estate.
The situation is straightforward when an executor of a New Zealand estate is a New Zealand resident.
If a will appoints an overseas-based executor, or a person who later moves overseas, this can lead to the New Zealand estate being caught by an overseas tax regime, or the New Zealand estate being treated differently by Inland Revenue. This can be a particular problem between Australia and New Zealand as in Australia, an estate is treated as any other trust for tax purposes. One way to address this in a will is to specify that an executor’s appointment is only valid if they remain in New Zealand.
Beneficiaries can also be liable for tax on their share of an estate. This usually occurs when they live overseas. If they live in a country with inheritance taxes, they may receive a much smaller share of the estate than other beneficiaries who live in a country with no inheritance tax.
If some of the beneficiaries live overseas, the estate can pay these taxes so that each beneficiary receives the same amount. A will needs to state this clearly, otherwise the default position is for the beneficiary to pay tax on their share of the estate.
Some overseas countries have deadlines for inheritance tax payments. Payment is sometimes required before the beneficiary has received their inheritance. A will can provide for an executor to advance funds in that case, so that the beneficiary is not out of pocket while waiting for their inheritance.
Be proactive
Preparing wills in New Zealand is becoming complicated as more of us live and travel overseas, and acquire international assets. When considering the provisions in your will, or when reviewing your current will, it’s essential to list your overseas assets, where they are located, and whether overseas lawyers and accountants will be needed.
If you need advice about your will and where your assets are located, please don’t hesitate to contact us. We are happy to help.
[1] Re McLean [2021] NZHC 1463.
