For US expats and others who are either living internationally or have assets located outside of their country of citizenship, estate planning takes on some unique dimensions. Many of the challenges involved in preparing a sound international estate plan
arise from living and owning property in countries that follow different legal systems.
Common Law vs. Civil Law
Across the world, countries follow two primary legal systems known as “common law” and “civil law.” In a common law system:
- Citizens and non-citizens are free to engage in activities and make decisions that are not expressly prohibited by law.
- Freedom to contract is broad. Aside from contracts with consumers highly-regulated industries (which are irrelevant to estate planning), mandatory contract provisions are rare, and the legal restrictions on the enforceability of contracts are limited.
- Judicial decisions craft the law of the land. Court interpretations of statutes are binding for future cases.
- The formalities for executing legal documents (such as wills and trust) are generally less-stringent than those in civil law systems.
In a civil law system:
- The codified statutes are the primary, if not sole, source of legal authority. Judicial decisions do not have the law-shaping effect that they do in common law systems.
- These codified statutes prescribe citizens’ and residents’ basic rights and obligations, and individual liberties are frequently more limited.
- Many contract provisions are implied or mandated by law, and individuals do not have the freedom to agree to provisions that are inconsistent with the legal requirements.
- There are often strict formalities for creating legally-binding documents.
Notable common law countries include: Australia, Canada, England, India, and the United States. Countries with civil law systems include: Brazil, China, France, Germany, Mexico, Japan, Panama, South Korea, Spain, and most other Asian, European, and South American nations.
How Common Law and Civil Law Systems Impact Estate Planning
1. The Role of the Executor or Administrator
In common law systems (including the United States), the executor’s role is to administer the deceased’s estate according to his or her estate plan and the relevant laws of probate. The executor must act in the best interests of the deceased’s estate, and must first satisfy valid creditor claims before distributing the remaining assets to the beneficiaries named in the deceased’s estate plan. If there is no estate plan (or if the estate plan is not comprehensive), the executor must use the probate system to distribute the relevant assets according to the law of intestate succession.
When a person creates an estate plan in a common law system, he or she can (and generally should) choose an executor. If no executor is named in the estate plan, then one will be appointed by the probate court.
In civil law systems, things can be very different. In China, for example, the deceased’s surviving family members may select one or more executors to administer the estate, or they can choose to administer the estate directly. When no successors are known or capable of fulfilling these responsibilities, administration duties may be handled by the village in which the deceased lived or the company or state institution for which the deceased worked prior to death. The executor may also have the authority to determine the validity of the deceased’s will, where as this function is performed by the courts in common law jurisdictions.
2. Freedom to Dispose of Assets and Forced Heirship
In common law systems, individuals are largely free to distribute their assets as they see fit. Forced heirship is generally not an issue; and as long as the estate plan meets the applicable legal requirements for enforceability, it can override the laws of intestate succession (more on this below).
Under civil law systems, forced heirship is more common. In many civil law countries, a person’s estate will be divided into “indefeasible” and “discretionary” portions – with the indefeasible portion being subject to forced heirship and the discretionary portion being eligible for estate planning. Forced heirship laws designate heirs in an order of priority, with spouses and children typically being designated as the preferred mandatory heirs.
3. Disposition of Marital Property
Marital property presents unique considerations in both common law and civil law systems. In a common law system such as the United States, the default rule is often that any jointly-owned assets become the sole assets of the surviving spouse. Common law countries (including the United States) often have favorable tax provisions as well, which state that a transfer to a spouse upon death does not trigger any immediate tax liability.
In civil law jurisdictions, surviving spousal rights to marital property are often defined by law. Continuing with the example of China, Chinese law provides that half of a deceased’s estate will transfer to his or her spouse unless otherwise agreed prior to the date of death. The law may also specify certain types of assets that qualify as marital (as opposed to “separate” property), and therefore which assets are to be distributed in whole or in part to the surviving spouse.
4. Formalities for Creating a Valid Will
The formalities for creating a will not only vary between common law and civil law jurisdictions, but often from country to country (and, in the United States, from state to state). In some jurisdictions, a hand-written (or “holographic”) will shall be enforced as long as it has been signed by the testator. In other jurisdictions, one or more witnesses, notarization, and sealing may all be required – whether the will is written, typed, or preserved in an audio or video recording.
5. Avoiding Laws of Intestate Succession
The laws of intestate succession (or “intestacy”) determine what happens to a person’s estate when he or she dies without a will. In common law jurisdictions, it is common for the law to specify both priority and percentages for designated heirs – who are almost exclusively the deceased’s surviving family members.
For example, New York’s intestate succession law
provides, in part:
- If the deceased has a spouse and no children, the spouse inherits everything.
- If the deceased has children but no spouse, the children inherit everything.
- If the deceased has a spouse and children, the spouse inherits the first $50,000 plus half of the remaining estate. The children inherit the balance of the estate.
- If the deceased has parents but no spouse or children, the parents inherit everything.
- If the deceased does not have surviving parents or a spouse or children, the siblings (if any) inherit everything.
Civil law systems have intestacy laws that can vary broadly. For example, in China, spouses, children, and parents are all considered first in priority, and siblings and grandparents have second priority if no first-in-priority kin are available to inherit the estate. In South Korea, direct descendants have first priority, with direct ascendants, siblings, and fourth-degree relatives following in succession. Other countries have different laws; and due to the lack of specificity under these laws (i.e., they do not specify who gets what), even if the order of succession reflects your final wishes, it is strongly in your best interests to put an estate plan in place.
More Resources for Individuals with Questions about International Estate Planning
For more information about international estate planning, we encourage you to read:
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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.