Colombia has attracted many expatriates who are looking for a good investment and a lower cost of living. The country has a lot to offer, from fresh food, to a great healthcare system, and friendly people who make living here so enjoyable. I am one of those who fell in love with this beautiful country.
As many retirees move to Colombia and invest in properties, they question what will happen to these assets if something happens to them. Would their family be able to take over their Colombian properties without going through the probate process locally? Would they be liable for estate tax?
The short answer is yes. US citizens have to pay estate tax on all their worldwide assets valued above $5,450,000 (as of 2016), and beneficiaries of Colombian properties have to pay Colombian capital gains tax on gifts they receive. Without planning in advance, your properties in Colombia will be subject to complicated probate processes, both in the US and Colombia, which will be costly and time-consuming for your family.
Colombia, a civil law country, has different inheritance laws from the US, which uses a common law system. Like other civil law countries, Colombia has forced heirship, which requires the estate to be distributed to spouse and descendants immediately and unconditionally, regardless of the individual’s wishes. What an individual can dispose freely is limited to only 25% of the entire estate.
The country also has a community property system, where all assets earned during the marriage or domestic partnership are considered jointly-owned community property, unless there is divorce or prenuptial agreement. At the death of one spouse, the surviving spouse can decide to receive properties either as a spouse with right to community property, or as an heir entitled to a certain share of the full estate.
Americans unfamiliar with these civil law concepts in Colombian estate planning can make a costly mistake of exposing their estate to complicated cross-border legal procedures.
In the following, I will go over what Americans need to know about Colombian estate planning laws when they are domiciled or have investment properties here.
Is a US Will Legally Binding in Colombia?
A will drafted according to the laws of the foreign country is valid in Colombia. However, proof of its authenticity and legal translation should be provided to the Colombian court before it is admitted.
If a foreigner is domiciled in Colombia and the will is made abroad, it has to comply with Colombian regulations. Additionally, the will should be authorized before a Colombian consul.
If a US citizen domiciled in Colombia has a US will, the US will is valid in Colombia, but does not supersede the mandatory allocations under Colombian forced heirship laws. Therefore, it is a good idea to have a separate will, or a will substitute in Colombia to make sure properties there are passed on according to the individual’s wish.
If a US citizen living in the US has Colombian properties as investments, and has a US will, the transfer of the Colombian properties will follow the US court order without a local probate. This is because the succession process in Colombia follows the law of the last domicile. On the other hand, the US state law generally applies the law of where real property is located, regardless of domicile. As a result, real properties in Colombia can cause a great deal of trouble in a probate process which has to choose between conflicting laws of the two countries.
What Makes a Will Vailid in Colombia?
In order to be valid and binding, a Colombian will must comply with formal requirements to show that the testator has legal capacity to make a will, unimpaired by mental illness, duress or fraud, and that the will has a lawful purpose. Additionally, at least two witnesses must be domiciled in Colombia for any type of Colombian will.
- An open will, also known as nuncupative or public will, can be made before three witnesses and a notary.
- A sealed will can be made in the presence of five witnesses and a notary, who will declare orally that the sealed document contains the will, but is not required to have knowledge of the content.
- An oral will is one type of privileged will where some formal requirements of will can be omitted in specific circumstances. An oral is made in the presence of at least 3 witnesses and is valid for thirty days following its execution, in case of imminent death of the testator.
How is Colombian probate Administered?
If a US citizen dies in Colombia, the US embassy will help notify all relatives of the deceased, and inform families about Colombian legal requirements for claiming the loved one’s remains.
If a deceased US citizen is domiciled and has properties in Colombia, probate proceedings will be carried out in Colombia to settle succession of the properties. Judicial proceeding is typical, and often takes years to conclude under the Colombian court system, which is burdened over capacity. However, if all parties, heirs and creditors are in agreement, they can decide to have a probate with a public notary, which takes a lot less time to conclude the settlement.
The probate process starts with collecting Paz y Salvo from all previous and current creditors of the deceased, showing all debts are satisfied. DIAN (Colombian tax agency) should also issue its Paz y Salvo that one does not have any outstanding tax owed.
When a Colombian-domiciled US citizen does not have a will, or has an invalid will, the probate court will distribute properties according to Colombian intestate succession rules.
According to forced heirship rules, if the person is married, half of the total estate first goes to the surviving spouse. Out of the remaining portion, half (25% of the total) goes to mandatory heirs by equal parts, and 12.5%, called cuarta de mejora goes to selected mandatory heirs to whom the deceased chose to give more. The remaining 12.5% is freely disposable by will.
If the person is divorced or not married, 50% of the estate goes to mandatory heirs and 25% to selected mandatory heirs. The remaining 25% can be distributed as a person wishes.
Even if you don’t like your children and don’t want to leave them any properties, you cannot avoid doing so under Colombian law. There are certain exceptions to the general rule, such as when an heir commits a murder or a serious attack to the life of the deceased, or tries to conceal a will.
Is There a Way to Avoid a Probate?
Joint ownership, which is often used in the United States to avoid probate, cannot be used for the same purpose in Colombia. In the US, when a property is owned by joint tenants with right of survivorship, the interest of a deceased owner gets transferred automatically to the surviving owners. In Colombia, the interest of jointly owned property has to go through a probate to pass on to heirs of the deceased, because the surviving owners do not have the same right. It is also true for joint bank accounts held by multiple owners.
In the US, an individual can set up payable-on-death or transferable-on-death bank accounts in order to designate beneficiaries at death, without going through probate. In Colombia, one can set up a collective account (colectivas) with other holders, so that the balance goes to the surviving holders without a probate.
Generally, checking and savings accounts under the amount of COP 52,163,723, as of 2016, can be transferred at death without going through a judicial probate.
As for trusts, Colombian law does not recognize ownership by common law trusts. Therefore, US citizens cannot hold Colombian properties through US revocable trusts. Foreign trusts are generally used by Colombian citizens and foreigners for properties outside of Colombia.
Yet, Colombia has unique structures such as civil trust (Fideicomiso Civil) and commercial trusts (Fiducia Mercantil) that can be used to avoid the probate process and forced heirship rules cost-effectively.
A civil trust is the simplest way to transfer a property by encumbering it with another person’s right to receive under a certain condition, such as a death of an original owner. A civil trust does not require a trustee. On the other hand, a commercial trust requires a trustee, which can only be credit institutions (banks) and trust companies authorized by the Banking Superintendency. When an event occurs, the institutional trustee is obliged to pass on the property to beneficiaries.
Colombian and foreign corporate structures can be also used to directly pass the interest of the deceased to beneficiaries. Transfers through corporate structures might allow beneficiaries to reduce a capital gains tax burden at death. However, corporations have annual tax obligations and accounting requirements. Therefore, each situation has to be examined in light of lifetime and after-death goals to make use of corporate structures.
One can use usufruct, which is a temporary ownership right for use and enjoyment of the property during a given lifetime. Upon the death, the usufruct interest expires, and the original owner retains all the rights of ownership.
Is Estate or Transfer Tax Levied on Properties Before Distributions?
There is no separate inheritance tax in Colombia. Gifts are treated as capital gains from the moment beneficiaries receive properties by the distribution judgment, and subject to 10% tax.
Properties passed through Colombian civil and commercial trust structures do not avoid capital gains tax when they are received by beneficiaries.
What Happens To a Child If Something Happens to Her or His Parents?
For parents with minor children, it is important to have a plan for taking care of them in the case of parents’ disabilities or deaths in a foreign country. Otherwise, children will be alone in a foreign country, not able to travel back home without an accompanying guardian. Colombian courts will appoint relatives as guardians. However, the court process takes an extremely long time, and children will be left without care until guardianship can be determined.
Colombian civil code allows parents to nominate a guardian in a will, not only to children born, but also conceived but not yet born.
Nominating guardians in writing will help parents make sure that children are taken care of by the person whom parents trust, instead of relying on a foreign court to decide with little understanding of the family situation. If a guardian lives in a home country, parents need to have a plan to have children safely travel back home.
Is It Legal To Create a Power of Attorney to Name An Agent To Administer Matters in The Event of Incapacity?
Power of Attorney (Poder legal) is commonly used in Colombia to appoint a representative who will act on behalf of a principal. It can either be a special power of attorney, giving power to act only under certain limited circumstances (such as a real estate closing), or a general power of attorney, giving broad power to make decisions.
By having a durable power of attorney, which survives and stays in effect when you become incapacitated, you can effectively prepare in case of incapacity in Colombia. However, at death, power of attorney expires, and the will executor takes over.
Even though Power of Attorney is valid until it is revoked, a person who is not in agreement with the designated power of attorney can dispute its validity. Therefore, if the power of attorney was drafted a long time ago, it is a good idea to have a separate certificate proving its current validity in order to reduce the chance of dispute in the future.
If a Power of Attorney is drafted outside Colombia, it has to have an apostille or other legalization from a foreign country, along with an official translation.
If you have properties in Colombia, consider having a durable power of attorney in place so that a person you trust can make decisions about you and/or your assets without court interference.
Are Living Wills or Advanced Healthcare Directives Utilized in Colombia?
Living will or advanced healthcare directive is not commonly used in Colombia to provide preferences for medical treatments when one is unable to express consent.
However, the Colombian government just legalized euthanasia, also called a dignified death (muerte digna) in 2015, becoming one of the only four countries to do so. Under this law, a doctor can administer a life-ending procedure when an elderly and terminally ill patient expresses a willingness to die.
In the case of unconscious patients, relatives may prove in writing or in a video or audio recording that a patient previously expressed their desire to end his/her life under certain conditions.
Therefore, we can anticipate a living will may become more popular in Colombia in the near future.
I recommend US citizens living in a foreign country to have a living will, healthcare power of attorney, and emergency medical information accessible by medical professionals when needed.
Colombia has a very different legal system from the US, especially with regards to estate and succession laws. It is very likely your American will cannot fulfill your wishes about Colombian properties. Make sure to update your estate plan if you live or have properties in Colombia, so that your family can avoid a probate that may take many years.
Personal thanks to Diana Pizano at Colombia Legal Partners, who has been a tremendous help for researching Colombian laws.
Contact Jiah Kim & Associates | International Estate Planning Attorneys for US Expats
At Jiah Kim & Associates, we provide comprehensive estate planning services for business owners, families, retirees, and other expats living in Panama and other countries worldwide. If you live or are planning to live in Colombia, we encourage you to contact us to discuss preparing an estate plan that will meet your needs. Call us at (646) 389-5065 or contact us online to schedule a consultation today.
This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.