Preparing your loved ones for life after your death
By John Hayward - Topics: Costa Blanca, Estate Planning, Spain, Succession Planning, Wealth Tax, Wills
This article is published on: 9th September 2017
Having recently attended a funeral for a good friend of mine, I was reminded of the problems a death can create, aside from the actual act of dying. It appeared that, although he had organised a funeral plan, he had not made it clear where his Will was. Even if the Will was found, most Wills are written to distribute unspecified assets. An heir needs to know what assets there are before claiming anything. A draw full of files might appear organised but much of the content may be out of date or even completely irrelevant.
Who is the household´s financial controller?
In my experience, when dealing with couples, one party, normally the husband, deals with all things financial. This has resulted in many widows having a hard time with finances on the death of the husband. The thought of picking a phone up to contact their bank is daunting enough. Forgetting one of the six security questions is fatal. Logging into the online banking system is totally out of the question, even if they knew what the user ID and password were.
What can you do?
It is a really good idea to make a list, with company name and reference number, of all the bank accounts, insurance policies, investments (insurance bonds/unit trusts/shares), premium bonds, and anything else which would make life easier for those looking after your affairs on your demise. Here is a link which illustrates just how much information could be required. Are you confident someone will easily be able to put all of this together?
How can we help?
Many years ago, I was a “Man from the major UK insurance company”. I still tend to work on the home service principle. Meeting people in their homes has always been more attractive to me as paperwork will often be to hand. There is also the possibility of a cup of tea and a digestive. There have been times when I have found investments that people were unaware of and also helped to cull the collection of paperwork, creating more storage space, and possibly room for a new sofa (from the proceeds of the policy they didn´t know about). Obviously, I do not wish to major in house clearance but I am happy to help people organise their paperwork, review existing investments and pensions, and make life easier for those with the task of dealing with everything later. Hopefully much later.
Fun financial fact
According to several reports, in 2012, in the USA, a 1 cent coin cost 2.4 cents to make. By 2016, the cost had reduced to 1.5 cents. Making cents still does not seem to be making sense.
French Inheritance Planning
By Spectrum IFA - Topics: Inheritance Tax, Le Tour de Finance, Succession Planning, Uncategorised, Wills
This article is published on: 9th September 2016
In May, I wrote about tax-efficient savings & investments in France, including Assurance Vie (AV), which is the most popular type of investment in France for medium to long-term savings. If you did not see the article, you can find it at www.spectrum-ifa.com/tax-efficient-savings-investments-france/
I had intended to return to discuss the benefits of AV for French inheritance planning, in the following month. But then we had the result of the Brexit vote and that caught my attention just a little more!
So now I am getting back to basics of what works for successful French inheritance planning for financial assets – regardless of whether the UK is in or out of the EU – and regardless of nationality. Without a doubt, this is the AV, as this is an excellent planning tool for protecting the survivor, providing you with freedom of choice about who you can leave your financial assets to, as well as mitigating the potential inheritance taxes for your beneficiaries.
In France, there are strict rules on succession and children are ‘protected heirs’, each being entitled to inherit a proportion of their parents’ estates. For example, if you have one child, the proportion is half; two children, one-third each; and if you have three or more children, three-quarters of your estate must be divided equally between them.
However, for a quirk of historical reasoning, the death benefits paid from an AV fall outside of your standard estate. Therefore, you can leave the proceeds of your AV to whoever you wish and so get around the French ‘forced’ succession rules. I know that there will be many out there who are saying that you can do this anyway now, as a result of the EU Succession Regulations. Well that’s true, but maybe it’s not quite as straightforward as one might think – or at least hoped!
The problem is that even though the EU Regulations have been in place for more than a year now, these have not been widely tested. Notaires and cross-border legal specialists are still trying to get to grips with how these Regulations actually work in practice. So I, like many other professionals, still hold the view that if there is a tried and tested ‘French way’ to achieve your objectives, then this should be used. Early articles that I wrote on this subject can be found at www.spectrum-ifa.com/the-eu-succession-regulations/
The EU Succession Regulations do not change the potential French inheritances taxes that are payable, but an AV does. Whilst there are no French inheritance taxes between spouses and partners who have entered into a legal civil partnership (known as a PACS, in France), for other beneficiaries, the tax rate varies according to their relationship to you. For example, step-children (and other non-blood beneficiaries) are taxed at a punitive 60%!
For amounts invested in an AV before age 70, each beneficiary (whatever their relationship to you) is entitled to a tax-free allowance of €152,500. Taxation is limited to 20% on amounts paid above the allowance up to €700,000, and at 31.25% for amounts exceeding €700,000 per beneficiary). There is still no tax between spouses and PACSd partners, whatever amount is transmitted.
There is no limit to the number of beneficiaries that you can name. Hence, whatever your family situation, it is possible to pass on your capital to whoever you like, without them suffering excessive rates of French inheritance tax. Thus, the survivor can be fully protected and then the capital can subsequently pass to your other beneficiaries, following the death of the survivor.
For amounts invested after age 70, the inheritance allowance for all your beneficiaries combined is reduced to €30,500 (plus the investment return on the total amount invested). In effect, therefore, it is only the amount invested that exceeds €30,500 that would be taxed at standard French inheritance tax rates.
Sadly, social contributions are now charged on any gain in the policy paid out as a death benefit. Even so, when the above inheritance planning advantages are taken into account together with the personal tax savings, this makes the AV a very attractive proposition.
Inheritance planning is a highly specialised and complicated subject. Everyone’s family situation and level of wealth is different and it is very important to seek professional advice, so that the best course of action for you can be established.
The benefits of AV and tax-efficiency is a subject that we cover in our popular financial seminars across France – “Le Tour de Finance – Bringing Experts to Expats”. Overall, our industry experts will be presenting updates and outlooks on a broad range of subjects, including:
- Financial Markets
- Assurance Vie
- French Tax Issues
- Currency Exchange
The date for the local seminar is Friday, 7th October 2016 at the Domaine Gayda, 11300 Brugairolles. Places are limited and must be reserved, in advance. This venue is always very popular and with less than a month to go, the event is likely to soon be fully booked. Therefore, you should contact us as soon as possible if you would like to come to the seminar. I will be at the event with our other advisers in this area, Rob, Derek and Sue.
In practice, financial advice is needed more than ever in uncertain times. Doing nothing can often be an expensive mistake. Hence, if you are not able to attend the seminar and would anyway like to have a confidential discussion with one of our financial advisers, you can contact us by e-mail at email@example.com or by telephone on 04 68 31 14 10 to make an appointment. Alternatively, if you are in Limoux, call by our office at 2 Place du Général Leclerc, 11300 Limoux, to see if an advisor is available immediately for an initial discussion.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of the investment of financial assets or on the mitigation of taxes.
The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter.
Making a Will and EU Succession Planning in Spain/Europe
By Chris Burke - Topics: Barcelona, Inheritance Tax, Spain, Succession Planning, Uncategorised, Wills
This article is published on: 15th June 2016
The Laws on making a Will in Spain/Europe changed on the 17th August 2015. These changes could greatly affect what would happen to someone’s estate/inheritance when they die and it’s therefore important you understand what these are and how they could affect you.
The reason for these changes in that is essence European states have differing laws on who inherits an estate. Many of these are complicated and unclear, making it uncertain who will inherit exactly what.
For this purpose, EU Succession Regulation introduces common rules on which State’s laws apply if there is a conflict between countries’ succession laws.
The following countries are bound by the new regulation:
Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, Finland, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden.
Notable Absentee’s are the UK, Ireland and Denmark.
Where you are ‘habitually resident’ that country’s laws will apply
To give you an example, a person dies leaving assets in France, Spain, and Germany and resides here in Spain. Due to the fact they are resident in Spain, the assets will be governed by Spanish law.
So what are the rules of Habitual Residence?
How long you are in and how often you visit a state/country as well as the conditions and reasons for you being there. Simply put, for most people, more than 183 days in one country, living or retired there makes it your main residence.
Making a Choice of Law
This default position can be overridden if you choose to apply the law of your nationality via a Will. For example – a German national dies leaving assets in France, Spain, and Germany. They are habitually resident in Spain but have stated in their Will that German law will apply to their estate. All of their assets will be governed by German law.
What about the UK?
As the UK is not bound by the Regulation, UK assets can never be governed by the law of another EU state. However, those states bound by the Regulation have to allow the application of UK laws to assets in their state if someone so chooses.
How might this affect me?
Many EU states have laws of ‘forced heirship’ under which certain assets (such as holiday property) can only be inherited by certain people. The inheritance laws in England and Wales allow you greater freedom to leave your estate to whomever you wish when you die. If you have assets in any of the states bound by the Regulation it may affect which laws will apply to them.
Who does it affect?
All foreigners who have their habitual residency in Spain and die on or after the 17th of August 2015. Spanish nationals may disregard these changes as they are unaffected by the changes.
Examples of which Will you may need
• I am a British/Irish national and NOT resident in Spain. I Don’t Plan to become Resident in Spain.
In such a case this Regulation does not affect you. It only affects existing residents in Spain or else those who at some point in the future plan to take up residency in Spain. There is no need for you to make a new Spanish Will.
A WORD OF WARNING HERE! If you are not truly a resident in Spain i.e. spend less than 183 days a year here, then that’s perfectly ok and you have nothing to worry about. However, if you are PRETENDING you are not resident in Spain, be very careful. More and more people are getting caught out by various means, and fines can be punitive. The reasons for wanting to be UK resident are currently negligible compared to being a Spanish Resident. Inheritance tax is almost nothing if anything in many cases here in Catalonia at present, and the other taxes you pay here are again currently very similar to that of the UK. Why run the risk of getting caught?
Examples of who this may affect?
• A non-resident Scottish man who inherits Spanish assets will also pay Spanish inheritance tax.
You cannot opt out or choose your own national Inheritance tax laws on inheriting assets located in Spain. You have to pay Spain’s IHT.
Other potential questions might be:
• Can I choose my own national tax law besides opting for my national succession law? The short answer is no
The regulation entitles you is to choose freely the Succession Law of your own nationality (i.e. England and Wales or Scotland’s) in lieu of Spain’s compulsory heir rules which, following this new Regulation, applies by default if your habitual residency is in Spain at the time of your death on or after the 17th of August 2015.
VERY IMPORTANT – PLEASE NOTE!!!
You CANNOT choose which Inheritance Tax Laws apply to your Spanish estate. It is mandatory to pay Spanish inheritance tax on Spanish Assets, still.
For example, an Englishman resident in Spain and inherits Spanish assets will pay Spanish inheritance tax.
To clarify on Wills……
You are simply choosing the rules of which country you wish the Will to follow. Either way, Spanish assets will STILL be liable to Spanish Taxes.
For example, in Spain assets left automatically go to certain relatives, whether you want them to or not e.g. the husband dies, 25% of any Property goes to any children, whether you want it to or not. This could then cause problems with selling properties, realising assets etc.
What do I need to do?
It is essential to co-ordinate Wills and Tax Planning (look no further) in each country concerned to ensure that your estate will pass to your chosen beneficiaries in the way that is best for you and your estate.
Chris, a partner of the Spectrum IFA Group, makes sure that not only are his clients assets managed correctly, but they are kept up to date and given the best advice for most eventualities that affect many people almost daily, that they do not think about or aren’t aware of.