Inheritance of Property Abroad

Sooner or later every person who owns property starts thinking about what will happen to his/her assets after his/her death.

Modern civil law system provides two options of transfer of property of the deceased owner to his/her heirs. If the person has not made any will, his/her property will be transferred to his/her heirs in the manner provided for inheritance by law.

Regardless of what kind of property is included into estate and in under which procedures it is inherited, the acceptance of the inheritance is the same in any case.

The opening of the inheritance is the day of the death of the testator. The period for the accession to the inheritance is determined by the Civil Code within six months. During this period, the heirs should apply to the notary office, submit a death certificate, documents confirming kinship and an extract from the last place of residence (registration) of the deceased person.

The estate includes the entire property of the deceased person, excluding personal non-property rights and other intangible benefits such as:

  • Right of authorship under which the heirs may not call themselves authors of a work;
  • The right to name, that is the heir does not solve issues related to the fact under which name or pseudonym the work will be published;
  • The right to inviolability of the work, according to which the work should be used in the form created by the author.

The estate may include not only property located in the Russian Federation, but also all assets of the testator located in other countries.

When inheriting the property located abroad, it should be noted that in this case inheritance rules will be governed by the laws of other countries.

Russian civil legislation provides that property is inherited under the laws of the country, of which the testator was last resident. Thus, when deciding on the application of legislation of a particular country, the citizenship of the deceased person is of no fundamental importance. It is important where the testator lived before his death.

However, in respect of immovable property, the procedure of inheritance, stipulated in the country where the property is located, applies.

Laws of European countries are similar to the regulations of the Civil Law of the Russian Federation, although each country has its own peculiarities.

For example, when inheriting property in the UK, the heirs should first make payments under debt obligations of the deceased person to creditors, after which they should pay all taxes due to the state.

Things are slightly different in France. First, it is necessary to pay taxes, and then settle debts with creditors.

It should be noted that unlike Russia, in most countries the heirs should pay the inheritance tax.

The tax rate mostly varies depending on the amount in which the estate is valued. For instance, in England the inheritance tax (IHT) is paid by the heirs of the deceased person who have come into his/her inheritance. Property estimated at less than 325 000 is not subject to the inheritance tax. The property exceeding the amount of £325 000 will be taxed at the 40% rate. For people who were legally married before the death of one of the spouses, this threshold is increased to £650 000.

In France, inheritance taxes are also paid by the heirs. The amount of tax depends on the degree of kinship between the heir and the testator. In joint ownership of real estate, the spouses have equal rights to it. After the death of one of the spouses, all property rights are transferred to the other spouse without payment of taxes. If the marriage was not registered, the people living together are deemed to be outsiders and pay taxes regardless of the period of cohabitation and management of the common household. Only after the death of the second spouse, the property is transferred to the children who were born in this marriage. The children are already required to pay the inheritance tax.

Inheritance tax rates in France are from 20% in the case of a straight line to 60% for heirs who have more distant kinship or heirs who are not related at all.

The heirs are not required to pay the inheritance tax in Bulgaria. Except the situations when an object worth more than 250 000 levs is transferred to third parties who are not relatives.

When inheriting property abroad, it should be remembered that the periods of inheritance in different countries differ in duration. The period of inheritance varies from 3 months to a year. In some countries, for example in Bulgaria, it is quite easy to restore the period. In other countries, for example in Latvia, the heir who has missed the inheritance period has to prove in court that he/she had good reasons not to inherit the property timely.

A number of differences lie in the definition of lines of heirs and terms of inheritance. For instance, the German Civil Code stipulates five lines of heirs:

  • The first category – lineal descendants of the testator;
  • The second category – the parents of the testator and lineal descendants;
  • The third category – grandparents of the testator and lineal descendants;
  • The fourth category – great-grandparents of the testator and lineal descendants;
  • The fifth category – great-great-grandparents of the testator and lineal descendants.

The Civil Code of France stipulates that the inherited property is transferred in the descending line. If there are no relatives of this category, the property is divided in equal parts between paternal and maternal descendants. The laws also stipulate a provision on lateral inheritance.

In the Republic of Cyprus, parents are referred to the second inheritance line but not to the first. The first line includes only children of the testator, and the spouses are set apart. They have special inheritance rights: if there are children, they have a predominant heritage share (3/4), and the rest can be claimed by the spouses. If there are no children, the spouse is entitled to at least half of the property. In Cyprus, there is a restriction on free disposal of property by will. It means that the abovementioned shares are mandatory not only for inheritance under law but also upon availability of the will. They are deemed mandatory shares under laws of Cyprus.

In any case, to inherit the property located abroad the heir should first apply for acceptance of the inheritance to a notary public in Russia.

Based on that application the inheritance and inheritance case are opened. Upon the receipt of a certificate of the right of inheritance, the certificate should be apostilled. The apostille entitles the heir to act by virtue of this document abroad.

Upon the receipt of the apostilled certificate of the right of inheritance, the heir may apply to a notary public in the country where the property in question is located. The notary public in charge of the inheritance case in the respective country will check the existence of other claimants to the inheritance as well as unpaid debts and tax payments that are accounted for by this asset.

After all necessary procedures the heir receives the state-recognized certificate of the country where the inheritance is located, the property is subject to mandatory registration in the relevant register.

As mentioned earlier, there are two ways of inheritance: by law and by will. However, in inheritance by will it is highly likely that the heirs will not get everything the testator intended to give them. On the one hand, the will may be litigated in court, on the other hand, the law provides for a mandatory share for the heirs, who are dependents of the deceased person. The mandatory heirs are entitled to half of what they can claim by law. For instance, if under the law the testator had one heir who is a minor child, regardless of who the will is be executed for, the heir will get half of the estate property by law.

It is possible to ensure the maximum protection of one’s assets both during the lifetime and after the death through the establishment of a trust or a family fund. In transfer of assets to the trust, the owner transfers his/her property in trust, but remains a beneficiary. De jure, the founder of the trust is not the owner of the trusted assets, but he remains the one de facto. It is possible to specify in detail not only the management procedure and the rights of the beneficiary, but also to describe the procedure of inheritance of the trusted property in trust agreement.

Given that the trusted property is formally not an asset of the beneficiary, it is not included into the estate; accordingly, the rules regarding the mandatory share in the inheritance are not applied to it. In addition to protecting the will of the testator and the assets themselves, trusts have another advantage over the usual will for taxation of income being transferred into the ownership of the heirs. The tax is paid only upon the receipt of money from the trust as profit or dividends.

Among foreign assets that can be included into the estate, bank accounts are inherited according to special procedure.

In practice, in the event of the death of the account holder, his/her account is to be frozen by the bank until his/her heirs assert themselves and are identified. All heirs who have asserted themselves will be deemed to be legal successors of the account holder by the bank. The bank does not divide funds held in the account in accordance with the inheritance law. The account will be unlocked only when the bank receives exhaustive information about all heirs. The basis for access to the assets stored in the account is the payment instruction, which should be signed in the presence and with the consent of all heirs. Should one of the heirs disagree, the access will be blocked until all heirs reach the agreement to sign the general payment instruction or a general instruction on the transfer of funds.

The bank generally requests special documents from the heirs. In addition, they should provide evidence of their status as legal heirs of the account.

It is important for owners of foreign assets to make sure during their lifetime that their heirs have all necessary information about the property, accounts and assets which should be transferred into their ownership. This information will greatly facilitate their procedure of obtaining the inheritance.

Tatiana Frolova

Leading Lawyer

Korpus Prava Private Wealth

Other Articles on Topics
See Also Articles from the Issue
Subsidiary Liability of Controlling Persons at Bankruptcy

The notion of a "controlling person" established by the Federal Law "On Bankruptcy" is quite broad, and its definition, with a sufficient evidence basis, may include a wide range of persons - participants, shareholders, general director, its deputies, members of the board of directors, chief accountant, beneficial owner, as well as other persons.

April 10, 2017

Minorities of All Countries, Unite!

As it is known, in the system of corporate relations the central player is the shareholder. In fact, all corporate legislation is, to one degree or another, aimed at ensuring the shareholder's rights for the development of a healthy corporate climate in Russia. Russian corporate legislation is currently experiencing a period of rapid development. Numerous innovations in the field of protection of the shareholders’ rights confirm this fact.

April 10, 2017

Same Old Story. Unified Social Tax

As we all know, from 2017 tax authorities have resumed the administration of insurance premiums, for which reason budget classification codes and the form of insurance premiums calculation have been changed. There are many questions indeed, because any changes create a misunderstanding between the administrative authority and the payer.

April 10, 2017

Exchange Differences

Exchange differences arise in accounting and tax accounting, and also affect the amount of taxes of the organization. The purpose of this article is to consider the procedure of the impact of exchange differences on values of assets and liabilities in accounting, on the VAT tax base and the tax base for income tax as well as on the profit of CFCs.

April 10, 2017

Reconnaissance in Force

It has been three years since the Law On Controlled Foreign Companies was adopted. The law has become an integral part of the Tax Code of the Russian Federation. Many things have changed for the past three years. In the course of adoption of amendments to the law, certain provisions of laws on controlled foreign companies had to be changed.

April 10, 2017

Subsribe to the Journal

Your subscription to our journal will definitely boost the efficiency of your specialists and downsize your expenses for consultants.