Australia is well known as a nation of immigrants, and in 2020 the proportion of us born overseas was 30 per cent. It’s often the case that while many of us leave loved ones and close friends behind, we continue to have strong relationships with them, even while living thousands of kilometres away.
When it comes to making an estate plan, it can be difficult to decide who will take on the important role of acting as the executor and trustee of the estate. If you’re an Australian who was born overseas, you may prefer to have friends and family acting in these important roles. But what does that mean for your estate?
The tyranny of distance
Firstly, there are practical issues to consider, particularly during the Covid-19 pandemic, which has brought significant restrictions on overseas travel. It can be difficult enough to act as an executor of an estate when you are locally based, but there are additional burdens that may occur if your executor is based overseas.
At a minimum, time differences can make it challenging for someone overseas to carry out your wishes for any funeral arrangements and wrap up all your personal, legal and financial affairs.
In addition, there may other be logistical difficulties, such as issues with opening bank accounts and filing your tax returns in an unfamiliar system. There’s also the possibility of challenges arising from the use of different terminology – let alone completely different languages – in dealing with household property and the sale of real estate.
The tax sting
Another important fact many are not aware of when making their will is that if the executor of an estate is not an Australian resident for tax purposes, the estate may become subjected to taxes it would not ordinarily be exposed to.
These taxes include:
Jane’s quandary
Consider the case of Jane, who in 2002 moved to Australia, where she met her husband Mark. They have three children, aged 10, eight and five. Jane and Mark are now divorced. Jane is an Australian resident and has acquired assets in Australia including her home where she resides, a share portfolio, cash and superannuation.
In completing her estate plan, Jane intends to make a will leaving her estate to her children at an age she deems appropriate. She would like to appoint her brother Rohan and sister Heather, who both live in the UK, as executors of the estate. However, Jane’s children will live with their father Mark in Australia if Jane dies while they are minors.
In making her will, Jane should consider a few potential issues that could arise. Her siblings may not have the time or financial resources to be able to spend a long period of time in Australia to administer the estate. During 2020 — with Covid-19 border closures — this would have been even more of a challenge. There is also the potential for a court in Australia to not grant probate (the document required to enable executors to administer the estate) to individuals who are foreign residents.
In addition, Jane must consider the fact her estate could be subjected to UK taxes, given neither of her executors are Australian residents for tax purposes. Therefore, it could be well worth Jane considering appointing an Australian resident to act as the executor of her will in place of Rohan and Heather.
What are the options?
It’s important to bear in mind that the person you nominate as executor can renounce this role, however this renunciation must occur before the executor commences the administration of your estate.
Where a named executor decides to not act, then the person you name as the substituted executor can take on the role. Where there is no substitute executor either named in the will or willing and able to take on the role, the beneficiaries of your estate can decide who should act as the administrator. This can be a lengthy and sometimes disputed process and one to be avoided, particularly where there are multiple beneficiaries or beneficiaries who are minors.
If you are new to Australia and have no close connections to someone who can act as the executor of your estate, you can choose to appoint a professional practitioner, such as a lawyer or a licensed trustee company. It’s important that you obtain consent from the proposed executor confirming their willingness to act as executor before they are appointed.
Not every country has the concept of a will or an option to choose how your estate is to be distributed. If you own assets overseas, it’s critical that you obtain legal advice from a lawyer in that country about what happens to your assets after you are gone.
More information on wills and estate planning services is available on Equity Trustees’ website.
IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.