Making life easier for your heirs

By Gavin Scott

None of us like to think about the day we will shuffle off this mortal coil, or how our loved ones will cope after we have gone. However, it is important to spend a little time now to make life easier for our family when they inherit our assets, and protect them from costs and taxes where possible.

Many people leave it too late, so it is best to explore your options today, to get it sorted and give you all peace of mind for the future.

Writing a Will is important, but it is not the only step.You need to establish all the facts about the distribution of your assets, and look for the most advantageous structures. Being a British expatriate makes this more complex, as you need to understand both the local and UK regulations and taxes, and how they interact. You may have assets in both countries and heirs in a different country to the assets.

Complex family situations need particular consideration. For example, if you remarried and have children from both marriages, or need to consider step-children. Or you may have concerns about how your heirs will handle their inheritance. You need specialist advice on how best to structure your estate so it is distributed, and your heirs looked after, just as you wish.

Wills

A UK Will may be effective in Portugal, but must go through the probate process in the UK before being translated, notarised and going through probate in Portugal – a long and costly process.

It is advisable to prepare a Portuguese Will relating to your local assets to smooth the legal process. Make sure it does not revoke your UK Will, or be at odds with it.

Inheritance taxes and probate

Many British expatriates remain UK domiciled, regardless of living in Portugal for many years. This means your worldwide estate must go through probate in the UK and be assessed for UK inheritance tax. This tax is due, at 40%, on the part of your estate valued at over £325,000 (possibly £650,000 for a couple).

Ownership of an asset cannot be transferred until the tax is paid.

You may also need to consider inheritance tax (known as Stamp Duty) in Portugal. It applies to Portuguese situated assets, and spouses and children are exempt. The rate for anyone else is 10%. It is the person who receives the assets who is liable to pay the tax.

You should seek specialist advice now to establish what you can do to lower or avoid the tax liabilities for your heirs, and if there are structures available which would avoid the need for probate for some assets.

Pensions

When you sign up to pension schemes, you are generally asked to fill in an “expression of wish” form, which outlines how you wish your pension assets to be distributed on your death.It is important to update these forms as your circumstances change.

These wishes are carried out by the pension scheme trustees, who also have a duty to consider other potential beneficiaries especially where they challenge the ruling.There has been a rise in the number of disputes over payment.Where paperwork is out of date, for example if you have re-married, it can be hard for the trustees to establish what your final intentions were.

If there is no expression of wishes and valid will, and no immediate family members, when the trustees distribute the proceeds to your estate the payment would be assessable to UK inheritance tax where applicable.So the message is, maintain a valid expression of wishes and do not leave it to chance.

Bank accounts and investments

Ask your bank managers and investment advisers what happens to your accounts and funds, including joint ones, when you die. If accounts are frozen until probate is received it could make life complicated for your surviving spouse if they need the money or have pension income paid into it.

With regards investments, depending on the type of investment and how you hold them, you may be able to fill in a beneficiary form, where the investments are easily passed on to your chosen beneficiaries, often bypassing probate.

Again, keep your form up to date, especially if circumstances change.

The most important piece of advice is to take specialist advice on all these issues, since getting it wrong could have consequences for your heirs. Build up a good, long-term relationship with your wealth manager.They will be aware of your situation and intentions, and can continue advising your family after you are gone, providing peace of mind as well as continuity of service.

Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should take personalised advice.

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Gavin Scott, Senior Partner of Blevins Franks. Gavin has been advising expatriates on all aspects of their financial planning for more than 20 years. He has represented Blevins Franks in the Algarve since 2000. Gavin holds the Diploma for Financial Advisers.

Blevins Franks Financial Management Limited is authorised and regulated by the Financial Conduct Authority in the UK, reference number 179731. Where advice is provided overseas, via the Insurance Mediation Directive from Malta, the regulatory system differs in some respects from that of the UK. | www.blevinsfranks.com