Expat options for holding property
Richard Colburn
Whether your real estate holdings are used for shelter or investment, it is important to make use of ownership structures that provide you with the greatest asset protection.
Tax planning
Many of the home countries of expats still levy Inheritance taxes, also known as death taxes, on the worldwide assets of their citizens. Inheritance taxes on real estate property and other assets are triggered by the death of a living owner. If real estate and other assets can be arranged such that they are not owned by an individual, this form of taxation can often be legitimately avoided.
Offshore companies
Offshore companies, also known as International Business Corporations or IBCs can hold real estate and other assets for expats indefinitely. Companies don’t die. Many of the world’s wealthy own luxury real estate property in exclusive locations through offshore companies. When these people die, the company remains the owner of these real estate. However if a shareholder of a company dies, then depending on the citizenship and sometimes place of residence of the shareholder, there may be Inheritance tax or death tax to pay on the value of his or her share of the entire value of the assets, including real estate holdings, of the company, even though there is no change of ownership of the underlying company assets.
Trusts
Trusts offer an alternative way of holding assets, including real estate. Like companies, they allow the legal ownership of real estate and other assets to be transferred from the expat who originally owned them, with the potential to legitimately avoid Inheritance taxes because trusts don’t have shares. But there are important considerations for expats considering this form of estate planning for their real estate and other assets.
The home countries of many expats now have extensive legislation governing the taxation of trusts. In particular, if any of the beneficiaries or trustees of a expat trust are living in your home country (or indeed in any country that taxes resident beneficiaries and trustees) this type of structuring may not meet your goals. Trusts established in some jurisdictions can be challenged by creditors and others claiming to have a financial interest in the trust assets of expats and so like real estate, location is everything. Furthermore, the trust legislation of many jurisdictions imposes time limits on how long a trust can exist.
Foundations
Foundations combine the best features of companies and trusts, whilst eliminating their drawbacks.
Foundations are legal entities and can be thought of as companies without shares. This avoids the Inheritance tax and death tax trap that catches expat shareholders when they die. Like companies, foundations can continue indefinitely with the potential to provide a permanent tax shelter for expats’ foundation assets, particularly real estate. This is a vital feature when considering multigenerational tax planning.
It is also much harder for anyone to make a successful claim against the real estate and other assets of a foundation than a company or trust. In particular, many of the jurisdictions where foundations are established do not recognise foreign forced heirship laws. They also impose relatively short time limits after which no challenge to foundations will be entertained for any reason other than money laundering, drug trafficking or terrorism.
This type of asset protection is widely used by working expats in industries and professions that are subject to penal litigation. Foundation laws and the fact that foundations are formed and managed by lawyers, provide a far higher level of confidentiality than is usually afforded with the use of companies and trusts.
Foundations can own real estate and hold bank accounts. They can own shares, mutual funds and bonds. They can own other physical assets such as precious metals, diamonds and works of art. The management structures of foundations are very flexible and are likely to be able to achieve the financial planning and asset protection goals of most people.
The right plan
Your expat estate planning strategy will depend on your personal circumstances including your place of residence, intended beneficiaries, type of business if you are still a working expat, the types and value of assets that you hold, as well as your citizenship in some cases. Although real estate cannot be physically moved offshore, it is possible to arrange an ownership structure in a way that legitimately avoids Inheritance taxes falling on expats.
Avoidance and evasion
It is the task of tax collecting authorities to extract all of the tax to which they are legally entitled. It is your right as an expat in particular to part with no more money than you are legally obliged to pay, which for some expats is nothing.
Offshore companies, trusts and foundations can help expats to legitimately avoid significant amounts of tax, safeguard your assets and ensure that your worldly goods are distributed as you intend.
Professionally exam qualified financial advisers can help you to design an asset protection structure that best meets your real estate ownership objectives.
Its your money and your peace of mind.
Richard Colburn is a UK qualified financial adviser.
Questions to the author can be directed to 053 839 463 or email us
