Ep. 69 - International Lives and the New Reality of Estate Planning

Speaker A: Welcome to Future Focused, the podcast where we explore forward thinking, sophisticated estate planning strategies for the modern world and bring you insights and actionable advice to help you navigate the evolving landscape of estate planning. Whether you are a seasoned professional or planning for your own future, this podcast is your guide to a thriving legacy. Let's focus in.

Speaker B: I'm your host, Michael Clear, and today we are joined by Suzanne Shire, Carolyn Rears, co editors of the third edition to the ABA Guide to International Estate Planning. We're going to have a conversation about the creation of the guide and international planning in general. So thank you both for joining us today.

Speaker C: My pleasure.

Speaker D: Thanks, Michael.

Speaker B: We'll start at the top. Why is the topic of cross border planning relevant now?

Speaker C: Well, the answer to that question is quite simple actually. It's because the world has changed and it's because the world will continue to change. The first edition of the guide was published in 2000. We all had BlackBerry phones in 2000. Uh, Y2K was fresh in our memory and it was the days before 9, 11 Twin Towers were still standing. It was just a different, different world. Well, now international estate planning is no longer niche. I get questions on this topic, Daley. I'm sure Carolyn does as well. Families that were concentrated domestically 25 years ago, now they have assets overseas, they have homes abroad, they have family members from other, uh, countries. They have multiple passports. Clients move to the States, clients move from the States. Plan B planning is something we see quite common now. So back in the day we had clients with foreign assets, now we have clients with international lives.

Speaker B: What are then some of those trends on top of that in cross border planning?

Speaker D: I'll start on that one. As Suzanne indicated, initially we see a lot more mobility among families. So clients are moving across borders more frequently for business opportunities or to create their own businesses outside of the United States. They move for education or for retirement or general lifestyle considerations. And also as Suzanne touched on, they're often seeking additional residences and even citizenships nowadays. So we see families on the move. We also see a change in what families look like. So we see a change in blended families and whether that's a, uh, first marriage where the couples have different citizenships or different religions. We also see second and even third marriages that cross borders, which leads to multiple family branches, children from different relationships or stepchildren who live in different countries. And this raises several significant legal issues, including forced heirship, marital property regimes, can community property rights, and other things that we'll touch on a bit later as well. Lastly, we see a greater concern around privacy and confidentiality these days. So with the growth of digital businesses, online accounts and AI and everything becoming much more accessible, including a lot of the reporting regimes that we've seen countries implement where owners of companies or even trusts are being reported to local governments, that information is being shared by tax authorities across jurisdictions. So clients are very concerned about privacy and confidentiality these days.

Speaker B: It makes it feel like the impact on who this is relevant to them is growing and massive.

Speaker D: I think that's right. It's not just the clients and their families, it's also the advisors. So as Suzanne said, we both work in the international planning space, so we regularly have more and more clients who are intersecting in our practice areas. But we also see other advisors, our partners in our firms, as well as financial advisors, insurance brokers. More and more people are just running into families and clients with these cross border issues. So it's impacting a much broader scope of people and advisors these days.

Speaker B: So then what's the backstory or the lead in or the why for updating the Guide to International Plan? How did you even decide to take on this what feels like a monumental task?

Speaker C: I don't know if it was a decision, Michael, and I don't think it was an informed decision. It actually all started at lunch and I was, uh, mentioning to colleagues that I was no longer using the second edition of the guide as a course book for international estate planning. I teach that at Northwestern Law School. Well, the two women I was with are actively involved in the American Bar Association, Real Property Trust and Estates and international committees. And lo and behold, next thing I knew, I was the editor for the third edition. In my view, the guide did not need just a high level brush up. It really needed a major overhaul with a holistic approach. So there would be a practical and technical guide that is advisory at its core, addressing everything from the dynamics of international families to the technicalities of expatriation. So thinking about how large a project it was going to be, when that finally dawned on me, I thought, who could I recruit to do this? And Carolyn's name came to my mind and she very graciously said yes. So thank you, Carolyn. I am indebted to you. We together recruited 51 contributors from 16, um, countries. The vast majority of the contributors are new contributors. The vast majority of the content of the book is new. New. We changed the subtitle for the book from Drafting, Administration and Compliance to Design, Administration and Compliance. That's telling. This is not just a drafting exercise. This is a, uh, design exercise that's great.

Speaker B: How hard was it to find those contributors?

Speaker C: People said, yes, we have, through our professional associations, the tremendous network of practitioners who are at the top of their game, generous with their time. And then I teach international state planning. There are, I think, four or five of my former students who I very probably will say are contributors to the book. So that was an aspect of the book that I think is very important. We were building on, um, the broad shoulders of what had come before. A lot of groundwork was done, and there are returning contributors, but we have a rising generation of professionals whose voices are heard here. And I think that's a really significant aspect of the book.

Speaker D: I really have to give Suzanne credit for redesigning and really thinking through how we organize the guide and the new chapters that we added to really make it flow as nicely as I think it does. I mean, she was the mastermind, so I was happy to be asked. I can't say I didn't have moments where I said, why did I agree to do this?

Speaker C: But we're still friends.

Speaker D: But we're still friends. We laughed a lot. And now that it's done, I'm really happy I did it. But to Suzanne's point, we have such a wonderful group of colleagues in the international planning regime internationally through different organizations that we're both very active in. And it's a very collegiate practice area because to become somewhat of an expert in this area, you have to really stay in it. It's almost like learning a foreign language. We lean on each other a lot because obviously we're all practicing in our home local jurisdictions, but running into these very complex cross border tax and governance and compliance and various issues that we're regularly speaking with a lot of these contributors. So it was really actually a fun exercise for all of us.

Speaker B: I think you reinvent kind of the approach and now, uh, you're hitting it. But you also, you added some new chapters. So what were some of those new things that you'd like to highlight?

Speaker D: So I'll start with two of them. One that's really important is international charitable giving is new, and we increasingly run into clients who are philanthropically engaged internationally. And that is a very tricky space to be in because you're often planning around not just tax compliance, which includes income tax compliance, not just gift and estate tax planning, but also just regulatory issues that are very different internationally. So I think that's really a great new chapter. We also focused a lot more on compliance issues in 2000 or 2001. Most international families knew what an FBAR was, which was the form you filed to say that you actually held a foreign bank account. The FBAR is now the tip of the compliance iceberg. I mean, There are probably 10 or 15 forms that a tax advisor in the United States needs to go through and decide whether a client needs to file that Form M depending upon whether they have assets abroad, businesses abroad, companies abroad, or whether they've received assets from a non US person. In addition, in 2011, the United States implemented the Foreign Account Tax Compliance act, or fatca, and the rest of the world followed on with the Common Reporting Standard, or crs. All of those compliance regimes are means of, um, governments and tax authorities sharing information about their residents and taxpayers. All of that, again, directly impacts clients who are moving internationally and globally. So we've got several new chapters on all of those various compliance areas. And it's super important because the penalties for not being in compliance are somewhat draconian. So certain forms, it's just $10,000 if you didn't file the form. Others are a percentage of the assets that were not reported or properly reported, which can actually run from 5 to 25% or in one or two cases, 50% of the value of the account. So you don't want to get that wrong. And, uh, Suzanne, maybe you want to touch on m some of the cultural compliance chapters or disability planning. Those are some new good ones as well.

Speaker C: Yes, we'll start with disability. When we think about wealth succession planning, we're thinking about end of life. But it is very common before the end of life to have a period of reduced decision making capacity. We have addressed that. If there is a health incident outside the US if there are assets outside the US and the individual loses capacity, how is health care going to be accessed? How are assets going to be managed when the individual is experiencing disability? So that is table stakes. But it was something that hadn't been addressed before and it, uh, can easily be overlooked. But when the situation arises, there is no substitute for having planned ahead. It makes all the difference. And then another area, we took a step back before we started into the tax and the technical things. We looked at the big picture and we are, uh, dealing with international families across cultures and across generations. So how are we going to build relationships with those clients across cultures and across generations? We've included a chapter on cultural competency and we've included a chapter on engaging the next generation. And I think this is one of the most overlooked aspects of planning. But, uh, if you get this right, pretty much everything else is going to fall into place. Think about some of the differences. In the US we tend to think of wealth succession as downstream from the senior generation to the younger generation. In many, many cultures, it's more intergenerational. Children are just as concerned about the financial well being and taking care of their parents as parents are of their children. There might be religious differences, pot or tithe, um, there may be differences in terms of whether wealth is even spoken of. There can be differences in terms of how you approach difficult conversations in the culture that we all live in. There's this terminology, constructive criticism. Well, that might actually be offensive to people in other jurisdictions. And the last thing you want to do is to offend a client or a colleague that you're working with in this space. Some generational perspective differences and then some gender differences. But honestly, I don't see the gender differences as being as significant as I was thinking I would in this space. But definitely, definitely differences. Carolyn and I both spent time working in the wealth advisory practices of financial institutions, and financial institutions were ahead of the game in terms of embracing the significance of these considerations. And the legal profession is just catching up. We're good at tax, we're good at technical things. We're getting better at these soft skills. But if they're soft skills, it doesn't mean they're any less important skills.

Speaker B: Right? You've added a chapter on it and then does it come out also in some of the country specific pieces or is it mostly in the divisional chapter?

Speaker D: It comes out in the country chapters for sure. So we have focused on 15 foreign jurisdictions in the book and those are written by local authors from those 15 respective countries. The one that just comes top of mind so fast is the chapter on India, the cultural implications of planning for Indian families. And this whole idea of caring for senior generations is so apparent when you go through that chapter and think about how succession happens, what the rules are, how religion influences the different rules around succession. It's pretty fascinating, actually.

Speaker B: That's m. Great. So we're going to just look at international planning from a higher view, I guess. Help me understand, help our listeners understand how does some of the legal and tax regimes differ thematically among countries?

Speaker D: So the most important thing that we try and get through in the book is for advisors not to assume that the rest of the world understands or looks like the rules. In the United States, we're so US Centric when we think about taxes and succession. So you sort of have to remember that we in the United States, our legal regime is called common law, which is also the case in England, Canada, Australia, and a few Caribbean countries. But for the most part, countries in Europe, Latin America, the Middle east, and Asia have legal tradition called civil law, where many of the rules around succession are based on legal principles that are statutory. They're law. Unlike in the United States, where we enjoy this broad testamentary freedom of being able to give assets to anyone that we want. For the most part, in these countries, there are mandatory inheritance rights that apply to children, spouses, and even more distant relatives if you don't have children in the mix. And this can very directly run afoul of traditional US Estate plans, where we just assume that, uh, clients can leave as much or as little as they want to their children or other family members. So the whole concept of this testamentary freedom in common law jurisdictions versus what we call forced heirship in civil law jurisdictions is probably the largest differentiator when we're talking about international estate planning. And the other is really on the tax side. So in the United States and in the UK And Canada, the taxation is viewed at the estate level. So it's either the donor, the person giving money away, or the decedent who has died and is now leaving bequests to family members or charities and other individuals. In the civil law countries, those taxes are usually at the beneficiary level. So as opposed to being at the estate or the donor decedent level, the taxes are assessed to the heirs, and they are responsible for paying those taxes. And that's a very different way to tax upon making debts or at death. And it also makes our treaty network very important. And we touch a lot, even in multiple chapters, on treaties and how they affect planning. Because obviously you have a mismatch if the estate, uh, is being taxed in the United States, because the decedent was a US Citizen living in the United States, and the heir is in France, for example, and the decedent owned an apartment in Paris that they want to leave to that heir. Now, all of a sudden, we need to be thinking about what the French inheritance tax issues are for the French recipient of this apartment versus the estate. And our treaties try and make some sense of this, but it's super important to be thinking about that, not just when death happens, but at the planning stage.

Speaker B: And trusts in particular, probably also have a. We love trusts.

Speaker C: Right.

Speaker B: We use lots of trusts on the. On the US Side. I imagine that's not a universal.

Speaker D: No. Uh, it's probably one of the most misunderstood issues in international planning. And even many of our civil law Counterparts, particularly in Europe, will recognize what a trust is and they'll try and tax it. But you can't write a French trust or a Swiss trust or a Spanish trust. And in some of the jurisdictions, they just disregard the trust and they look through it to the beneficiaries, which for individuals in the US to kind of treat a trust like that is so foreign to us and foreign to a lot of the reasons and tax issues that go into creating that trust.

Speaker C: All these years of establishing and funding trusts, I now regularly deconstruct trusts.

Speaker B: The opposite of a modification or a decanting.

Speaker D: Exactly.

Speaker C: And I don't know if deconstruct is the right term, but one of the

Speaker D: things we also did in the international chapters, and there are 15 country specific chapters, and is we created a rubric that we asked each of the authors to follow so that even if it's a country that doesn't recognize trust, they've put in some commentary about what happens if they see a trust. And then of course, some of the countries that have been much more willing to accept the concept of a trust and they're working out trying to determine how to tax a trust or tax the beneficiaries. So for example, in France or in Switzerland, those issues are addressed as well. We just thought it was important to try and keep some consistency through those chapters and make sure that they were touching on, um, issues that advisors are running into. Another obvious one is probate and how assets pass at death. Whereas in the United States we have this very formal process that takes place called probate. And in civil law jurisdictions, oftentimes the ownership just automatically passes to the heirs and there is no executor appointed, which is, uh, tremendously confusing to US Advisors. But the country chapters try and make some sense of that and also to address when you may be able to appoint an executor in a country that does not normally follow those rules.

Speaker B: So, Suzanne, um, when we're looking at maybe some of the major areas of consideration when you have a cross border client, we've already hit a little bit about how easy it is to run across a cross border client. But maybe thematically, you have clients here with assets elsewhere, you have clients moving here, you have clients moving away. Give us some of those areas of consideration.

Speaker C: So you've identified the three major categories. We have our domestic client with assets abroad, we have to determine how title is held, how it should be held, how the assets will be m managed in the event of disability, how the assets will pass at, uh, death, given the fact that many of these jurisdictions don't recognize freedom of testamentary disposition, they rather have forced heirship or there might be marriage contracts. We have to determine whether there will be a single will or there will be multiple wills. Something that, when we were in law school, you never did more than one will. But that's actually common in international planning and then compliance. For the client moving to the US and the operative word is moving, as opposed to moved, if they are moving to the US There are tremendous wealth succession planning opportunities. That's because US Persons are subject to transfer tax on their worldwide assets. But people who are neither citizens nor domiciled here are only subject to gift taxes basically on, um, U.S. located real estate and U.S. tangible property at death. It's also U.S. securities. But they have tremendous gifting opportunities that become much more limited once their domicile is established here and once they are subject to the US Tax regime. We're accustomed to spouses being able to freely gift between themselves, but if the spouse is not a US Citizen, there's significant limitations on that. So thinking ahead about the tax opportunities that there are, then also asset titling is really important and doing an overhaul of the plan, helping clients understand there's a difference between immigration law, income tax law, property law, transfer tax. So lot there briefly, in terms of the client who is leaving the U.S. what do we mean by leaving? Are they just going to spend a little more time at a family home in Canada or an apartment in Paris? Or at the other end of the spectrum, are they going to expatriate? So the planning will vary significantly depending on what they actually mean by that term leaving. And it's really important to get a handle on, um, what the client intends to do before they actually make the decision and they execute on their decision. Then there's the important question of where will they go? You're leaving what you know, you're going to what you don't know. You need to learn about the property law, the tax regime, and you need advisors. That's one of the things Carolyn and I do regularly is we connect our clients with advisors in other jurisdictions.

Speaker B: And I think you hit on the importance. It, uh, feels like a little bit of the change of the book, right? From drafting to design, the intention behind it, and the kind of importance of timing on any of those particular moves. Always trying to get ahead of it as opposed to steps have already been

Speaker C: taken in that regard. I know we're coming to the end of our time, but just the things for people to remember, this is all mainstream now. Mobility, mobility, mobility, transparency are things that we see. You have to be culturally competent and you have to be mindful of family systems. Again, compliance. And then the fact that this is a, uh, collaborative effort. This podcast has been a collaboration. Thank you, Michael and Carolyn. The book was a collaboration, but that is a key aspect of the successful planning.

Speaker B: It's a requirement to navigate the intersection for your clients. Is a, uh, phenomenal team of advisors.

Speaker C: Absolutely.

Speaker B: Well, thank you both for joining us today. It's a great introduction to the book and to planning, but I also think I'm always looking for guests and it feels like there are other topics that we could go a little farther here. Right. Whether taxes and trust administration or administration in general, the estate administration side of international planning are all things that pop into my mind that we can do a little bit of a deeper dive. So I hope we can have a further discussion on some of these topics.

Speaker C: Well, thanks again.

Speaker D: Yeah, thanks, Michael. Appreciate it. Thanks, Suzanne.

Speaker A: Thank you for listening to Future Focused, Sophisticated Estate Planning provided by the Private Client services department at Wiggin and Dana. Our aim is to preserve the wealth that a family has worked so hard to create, and we pride ourselves in offering value driven solutions and results. Subscribe to the show on your favorite podcast platform, share episodes with your clients, and follow our highly talented, creative and experienced lawyers on LinkedIn for even more great insight. We'll see you next time on Future Focused, Sophisticated Estate Planning.