GRAVE CONSEQUENCES: OFFSHORE ESTATE PLANNING
This mournful reflection introduces a subject which most of us instinctively wish to avoid: death. There are many ways of expressing it, such as, demise, departure, expiration, passing on, extinction and the more pithy, bite the dust or kick the bucket (more about this receptacle later). But there is only one way of describing the condition when someone dies without leaving a will: intestate. This is a condition best avoided for the sake of those left behind and if any of your assets (estate) happen to be offshore, the problems are usually compounded. It is those assets located offshore which I want to talk about because this article is specifically directed at those individuals who have created offshore estates but not considered fully the consequences of doing so. Let’s take a simple example, for which the names have been changed to protect the innocent and, in this case, also the foolish. The bank in the Cayman Island only knew that their client was dead when his widow arrived at the offices. Mr. Schubert had established the account just two years ago on a stop-over flight between Miami and Latin America. Mrs. Schubert showed the last account statement and produced her late husband’s cancelled passport, as well as her own for identification purposes. There was just over US$600,000 in the deposit account and she wished to have the account closed and the money transferred back to Central Europe. Although her husband had left her a house and movable property, there would be very little cash available once all debts had been cleared. The bank manager studied the file and recalled Mr. Schubert’s visit, remembering how the bank’s trust officer had advised him to establish a trust to cover the contingency of death. Mr. Schubert had said that he would be doing something, perhaps on his next trip, or words to that effect.
The banker conferred with his trust officer. This was the widow and, apparently, there were no children, so wouldn’t it be alright to give the money to the widow? The trust officer’s response was an emphatic "no" and he explained why. Only the executor of the deceased account holder’s estate in Europe could give proper instruction to the bank. If the funds were released to the widow, the bank would be placing itself at risk. In English law there is a name for it: Executor de son tort and there are many legal precedents which have found such intermeddling non-executors as defendants against creditors, tax and beneficiaries’ claims. Being a professional, rather than a layman, in such circumstances, would make matters worse in a court’s eyes.
I could relate other tales of woe similar to the preceding one, drawn from my experiences over the past 25 years or so both as a trustee and an executor. It doesn’t matter how small a deceased estate is - even if it’s insolvent - someone has to settle, at least, with the creditors. So a will is a fundamental necessity after which the need for a trust can be considered in the light of the nature and location of assets. Trusts and wills can be domestic or offshore and you can have different ones dealing with particular parts of your worldwide estate. In a lot of situations it is wise to have either a will or trust dedicated to your offshore assets. It is a sad fact, however, that most people never execute a domestic will and of those who do, a good 50% rarely review them on a regular basis. Educating people about wills has been an uphill struggle since Roman times and we can only lament for the Will’s grim progress, with apologies to Chaucer. Wills are a reminder of our mortality and this must account largely for the reluctant approach which most of us adopt. The greatest neglect, however, seems to be reserved for our offshore estate and it is an irony that these assets have probably been cultivated and protected like orchids in a hothouse during our lifetime, but are readily abandoned and neglected upon our demise.
If the offshore assets are scattered across the globe, an executor will need to appoint agents in the various countries to deal with the assets located there and this will add significantly to the costs of winding up the estate. Until the executor’s authority has been accepted by the foreign courts, the foreign assets will be frozen and, depending on the nature of the assets, this delay could be very prejudicial. It is not uncommon for several months to pass before an executor’s authority is confirmed in a foreign country - especially where all the supporting documentation has to be officially translated into another language. If there is no will in the first place, the delay before an executor is appointed will have a knock-on effect offshore. Always remember that in intestacy the heirs are chosen by the relevant laws of intestate succession and might include persons the deceased would never have chosen.
Most of the sophisticated offshore investors manage their assets through a company incorporated for them in one of the many offshore finance centres. I always see these companies as performing the function of buckets into which all the assets are poured, such as real estate, investment portfolios, business agreements and bank accounts. The trick is to keep everything in this metaphorical bucket without seeing the bucket kicked over and having the assets spilled in all directions. What’s needed is a firm grasp on the bucket handle and this is best provided for by a trust inter vivos. Simply stated, the shares of the asset-holding company would be transferred to a trust established and active during a person’s lifetime and managed by a trustee. A properly-drafted trust deed will guarantee a smooth transition of ownership, whoever dies and when, with the grip on that handle never weakening.
I hope that some readers who fall into the category of will-evaders are provoked into action. They should get advice from a qualified practitioner experienced in the administration of estates and trusts so that the only tears shed at the graveside are ones of sadness, rather than anguish and frustration.
Incidentally, Mrs. Schubert left the Cayman Islands empty-handed. Unfortunately, her late husband had died intestate which produced a line of statutory succession not contemplated by the widow and which reduced her inheritance significantly. Family squabbling ensued and almost two years after her visit to the Cayman Islands, the funds in the account were finally released. Since then I understand that the bank has identified a few foreign inactive accounts which have hold-mail instructions and no contact details. Will someone eventually claim them if the account-holder is dead? What if the customer told no-one about the account? Depending on the jurisdiction, unclaimed monies eventually become bona vacantia and pass to the country’s Treasury. A sad state of affairs.
This article started with a sombre preamble, so let me end with a personal maxim which conveys the same message but without the gravity: