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Today people are more mobile than ever before. This is especially true within the European Union and countries of the North America Free Trade Agreement (Canada, the U.S. and Mexico) where immigration and work permit issues are being greatly simplified or eliminated.
Where significant wealth is involved, having family members in various countries can give rise to tax and estate planning opportunities. It can also result in a quagmire of complexity and a recipe for double taxation.
Countries vary in the way in which they approach the taxation of wealth. The majority of countries levy estate taxes (also called inheritance taxes or succession duties). These are levied on the value of the assets which pass to heirs, with certain exceptions. Usually these countries also have a gift tax system. However, certain countries instead charge capital gains tax at death, where property is deemed to be sold at fair market value.
Families with significant wealth need to obtain a thorough understanding of how these taxes work. If ignored, a substantial portion of the family's wealth could disappear in such taxes, without the family receiving any particular benefit.
These taxes can have a long reach. For example, the U.K. inheritance tax may apply for five years after the person leaves the U.K. For U.S. citizens, the U.S. estate tax applies worldwide, regardless of the residency of the individual.
The first step in developing an estate planning strategy for a multi-national family is to assess the current situation. This means understanding the family's assets, the location of the assets, how these assets are owned, and what the assets are worth.
The next step is to determine the taxes that would apply based on the current structure. This may then lead to recommendations for a possible change of residency, creation of international trusts, an estate freeze, or other planning techniques. Throughout this process, local advice is extremely important, and so is an appreciation of international tax planning techniques.
Through ITSG members, we can evaluate a family's succession planning, carefully consider the income tax and estate duty issues in all relevant countries, and implement a multi-faceted plan to minimize the overall tax position for the family.
Our ultimate objectives in this work are:
- to pass assets to the next generation in accordance with the family's wishes, with suitable protection control;
- to minimize income tax and capital gains tax on these assets;
- to eliminate or minimize income taxes and\or estate taxes on succession.
The earlier the process begins, the better the chances of achieving these objectives.