Avoid Unpleasant Surprises With Inheritance Laws Abroad

Tropical white beach house surrounded by palm trees on the island Koh Kood, Thailand.

What Happens To Your Overseas Property If You Die Before Selling?

Before you buy property in any country overseas, you need to understand the local inheritance laws.

The good news is, with the right preparation, you should be able to leave your property to your chosen heir(s)…

Senior Real Estate Correspondent Lee Harrison has invested in numerous markets in Latin America where he’s met with his fair share of inheritance laws. Below are Lee’s insights on what you need to watch out for…

Lynn Mulvihill
Editor, Overseas Property Alert

How To Avoid Surprises On The Sale Of Your Overseas Property

Back in 2005, my friend Della was living the dream in Ecuador, with Alan, her husband of 31 years. By 2008, she was unexpectedly sharing ownership of her dream home with three adult stepchildren.

And it happened for an all-to-common reason: The couple hadn’t understood Ecuador’s inheritance laws.

In most of the United States and Canada, citizens enjoy a great deal of flexibility when it comes to estate planning. With a valid will, you can leave your property to pretty much anyone you like.

In most cases, it’s normal to leave your home to your spouse, a practice we North Americans assume to be our inalienable right.

But that’s not how it works in much of the world. Many countries require that you leave your property—or your portion of a jointly-owned property—to your children or your parents rather than your spouse. The concept of joint tenancy with right of survivorship is not widely recognized.

And, what’s more, usually you cannot override these inheritance laws with a will. This practice is based on old European laws designed to keep family estates in the family to prevent a single landowner from breaking up an estate that had been in the family for many generations. It’s based on the premise that descendants have an inherent right to the family estate.

Why Foreign Inheritance Laws Can Become A Difficult Issue

The first thing to keep in mind is that, when property is jointly owned between spouses, the estate of a deceased spouse only includes their half of the property. The surviving spouse’s half of the property is not part of the estate.

The issue can be touchy if the husband and wife have children from a previous marriage. Simply put, the children of the deceased inherit the deceased’s half of the property. This is how Della came to own half of her property in Ecuador, while her husband’s three children owned the other half.

And, even if the children all belong to the same parents, having a number of co-owners can complicate the ownership picture. For example, when the surviving spouse goes to sell the property, all of the children have to agree and sign.

I have a friend in Uruguay with one son who refused to sign for the sale, forcing him to keep the property (the son wanted to use it). Also, if a parent outlives one of the co-owning children, then that child’s heirs also become co-owners to the property.

As you see, the process can become complex using foreign hereditary laws.

The Hereditary Situation With Overseas Properties

When I asked about a will in Colombia, my attorney told me to think about whether it was worth my money to create one given that the results of dying with a will (in my case) are about the same as dying without one.

But it’s important to have a will, even if the will can’t do everything you want it to do. A will serves to clearly identify your heirs and the property that you’re leaving them. It also names your executor, who can pave the way for your heirs while complying with the country’s legal system.

So, even if the children from your first marriage end up sharing a condo with your fourth wife, at least they all can stake their claims quickly and efficiently if you have a will. I’ve paid as little as US$40 for a will overseas and as much as US$200—little money, well spent.

In Ecuador and Colombia, a married couple doesn’t get much more control with a will than the law otherwise mandates. You can’t simply leave your half of the property to your spouse, even with a will.

In Brazil, a will is even more important because you can do more with it. Half of your estate is completely unrestricted, and your spouse is included as a mandatory recipient in the other half. Also, in Brazil, you can use your will (and inheritance laws) from your home country, provided any Brazilian heirs you have are treated fairly.

In France, it may not be worth your while to create a will. Your spouse is entitled to just one quarter of your estate, although it could be more, depending on how many children or grandchildren you have. To leave your entire property to your spouse, you should look into a French marriage contract, a trust, or a family inheritance pact. These tools will do the job in France better than a will.

In Belize (a common law country like the United States), you can leave your property to anyone you like. But, if any of your relatives think they were treated unfairly, they can apply for relief to the Belizean Supreme Court, which may change the distribution.

Your home-country will can be accepted in Belize, as long as it meets the requirements of Belizean law, which requires a written will signed by the testator and two witnesses (who are preferably not beneficiaries in the will).

I give these examples simply to show you the varying hereditary landscape, not to attempt to give legal advice. It’s important that you discuss succession with a qualified lawyer to get the current situation in any given country.

Assuring Your Property Goes Where It’s Intended

I’ve used all four of the methods below with success, although, given that I’m still alive, I suppose my success is yet to be tested.

1. Do nothing and hope you don’t die

At least until you’ve sold your overseas property. This is the strategy that most expat owners employ, and it works great for those who know precisely how long they’re going to live. For those of us who don’t, it can be risky.

But it’s not always as risky as it sounds. If you’re happy with the country’s default inheritance laws, then dying without a will may work for you. For example, if you’re a single person with two children and you own a property in Colombia, they’ll split your in-country property between your children, whether you have a will or not.

2. Prepare a will in accordance with the country’s standard practices

Again, this would work fine, if you do not have a spouse, if there are no children involved, or if you are satisfied with the country’s default options. It’s better than the “hope not to die” solution above because you get to name an executor and identify your ultimate heirs.

3. Don’t mention the kids when preparing your in-country will

In this case, you’d prepare a will that leaves your property to your spouse and not mention any children that you have. (In some countries, you’d need to explicitly say you have no children.) This works well, as long as one of your kids doesn’t contest the will. If they do, they’ll win.

The reason this usually works is because most children of expats don’t really want to own half a condo in South America. They’d just as soon receive money instead or wait until the surviving spouse leaves the property to them.

When it doesn’t work, of course, is if you both die at the same time. In this case, claiming you had no children won’t make it any easier for them to inherit the property.

4. Own the property through a structure or entity

This is the best solution, although it’s also the most complex. In this scenario, you’d create a corporation, LLC, trust, or other entity and take care of succession within its structure or bylaws. Then the entity in turn owns the property.

This works well and can often eliminate the need for an in-country will. It can also lower the eventual selling transaction cost because the property remains in the company’s name while you privately transfer the company to the new owner.

In some cases, it will be to your advantage to have your financial structure in a different country than where the property is located.

Get Started With Your Overseas Estate Plan

First and foremost, you have to decide how to hold the property (in your name or within a financial structure) before you buy. Do this by contacting an attorney and determining if the country’s default inheritance laws work for you. This may be the attorney who is handling your real estate transaction.

I favor holding properties in my own name for simplicity’s sake, but I’ve used entities when I felt I must.

Once you buy, sit down with an attorney to prepare a will. Provide the property’s specifics to a trusted family member or friend back home, along with the name of an in-country attorney or friend who can help them out if something happens to you. This way your heirs will be able hit the ground running if they need to.