Offshore Beneficiaries – Typically, you can leave your assets to whomever you choose. There are some practical considerations when the intended beneficiaries reside offshore or are not Australian citizens or permanent residents.
Personal items
You might want to leave your antique teaspoon collection to your cousin Jill in Birmingham as you know she is the only one will appreciate the collection. That is fine, but the cost of transporting the collection to Birmingham needs to be paid by Jill, unless you stipulate in your will that your estate will cover those expenses. Expenses may include things like insurance, packing and import or export duties, not just the actual postage costs.
Depending on your collection this might not be too large an amount. It becomes more of an issue when you decide to leave your baby grand piano to Uncle Bob in Cape Town as he is the only family member who isn’t tone deaf.
Real Property
Leaving your home to your nephew Billy who lives in Budapest and is not an Australian citizen may sound like a lovely idea. Billy will always have somewhere to stay when he comes to visit Australia and indulge in a spot of bird watching, as he is prone to do as an avid twitcher.
The reality is Billy would need to apply for Foreign Investment Review Board (FIRB) approval as the property is existing residential real estate. The cost of an application ranges from $42,300 (where the property is valued at less than $1million) to $338,400 (where the property is valued between $3m and $5m) or more if the property is worth more. Success of such an application is not guaranteed.
There are also vacancy fees that may be charged if no one resides in the property (or it is not available for rent) for at least six months of every twelve months while Billy is living in Budapest.
Even where Billy receives approval to acquire the property, many States and Territories impose surcharge land tax on residential property that is held by non-Australian citizens. Surcharge land tax may also apply, depending on where your property is, a testamentary trust holds the property, and any potential beneficiary is deemed ‘foreign’.
One alternative to this may be to direct your executors to sell your home and pay the proceeds to Billy so that Billy does not have to pay the non-refundable FIRB application fee, any vacancy fee, surcharge land tax and any other taxes.
Tax
Other tax issues may arise where taxable Australian property passes to a foreign beneficiary as your estate may be liable to pay capital gains tax and not have access to the usual CGT exemptions that apply to deceased estates.
Foreign laws
There is always the possibility that your overseas beneficiary may be subject to the laws, including as to inheritance tax, in their home country. Accordingly, you may wish to discuss this with your intended beneficiaries so that they do not end up having to disclaim a gift due to unexpected legal and tax issues on their end.
Currency Risks
You may want to leave your dear friend Rita in Sao Paulo the sum of $100,000 in recognition of her kindness during your lifetime. If you do not specify a currency that this amount is to be paid in your will is likely to be construed so as to mean in Australian dollars. Depending on when you pass away this thoughtful gift could end up being substantially more or less than what you intended.
Takeaways
You should discuss the circumstances of your desired beneficiaries with your estate planning lawyer who, if experienced, will know when to bring your accountant (or tax advisor) and potentially even the beneficiary themselves, into the process. This should ensure that the administration of your estate is smooth and your hard-earned assets end up with the right people without adverse or unintended consequences.
An experienced estate planning lawyer knows the above and more and will have options for you to consider ensuring your intentions are implemented in the most straightforward way.
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