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Understanding Inheritance Laws When Owning Property Overseas

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2015-06-16
Laws differ as to whether spouses or children automatically inherit property.
The rules for bequeathing property to heirs vary by country.
Imagine that you and your spouse are living your retirement dream in, say, Ecuador. Then your spouse dies and you discover that you now share ownership of your Ecuador dream home with your deceased spouse's adult children. It's not a wholly unlikely scenario if you buy a home in another country without understanding that country's inheritance laws.
In the United States, citizens enjoy a great deal of flexibility when it comes to estate planning. With a valid will, you can leave your property to anyone you like. Usually, we leave our homes to our spouses.
However, that's not how inheritance law works in much of the rest of the world. Many countries require that you leave your property – or your portion of a jointly owned property – to your children or your parents rather than to your spouse. The concept of joint tenancy with right of survivorship is not widely recognized.
What's more, you cannot always override these inheritance laws with a will. The practice of leaving property to children or parents is based on old European laws designed to keep family estates in the family. It's founded on the premise that descendants have an inherent right to the family's holdings.
However, following this approach, things can become complicated if a husband or wife has children from a previous marriage. In that case, the children of the deceased inherit the deceased's share of the property. Even if the children all belong to the same parents, having a number of co-owners can complicate things. Before the surviving spouse could sell the property, for example, all of the children would have to agree and sign. And if the surviving parent outlives one of the co-owning children, then that child's heirs become additional co-owners.
Again, a will can't always override these complications. In Ecuador, for example, a married couple doesn't get much more control with a will than the law otherwise mandates. You can't simply leave your half of the property to your spouse, even with a will.
In Brazil, on the other hand, a will is extremely important. Half of your estate in this country can be bequeathed as you like, without restriction, and your spouse is included as a mandatory recipient in the other half. Also, in Brazil you can use a will (and the inheritance laws) from your home country, provided any Brazilian heirs you have are treated fairly.
In France, your spouse is entitled to a quarter of your estate, although it can be more depending on how many children or grandchildren you have. To leave your entire property to your spouse, you should look into a French marriage contract, trust or a family inheritance pact. These tools do the job in France better than a will.
In Belize (a common law country like the United States), you can leave your property to anyone you like. However, if any of your relatives think they have been treated unfairly in the will, they can apply to the Belizean Supreme Court for relief.
I give these examples to show how varying the global hereditary landscape can be, not to attempt to give legal advice. It's important that you discuss succession with a qualified lawyer to understand the current situation in any given country.
Here are four strategies to consider when determining how to handle your estate in another country:
1. Do nothing and hope you don't die before you've sold your foreign property. This is the strategy that most expat owners employ, and it works great for those who know precisely how long they're going to live. For those of us who don't, it can be risky.
On the other hand, it's not always as risky as it sounds. If you're happy with the country's default inheritance laws, then dying without a will can work. For example, if you're a single person with two children, and you own a piece of property in Colombia, then that property will be split between your children when you die, whether you have a will or not.
2. Prepare a will in accordance with the country's standard practices. This works fine if you do not have a spouse, no children are involved and you are satisfied with the country's default options. It's better than the "hope not to die" strategy above because it allows you to name an executor and to identify your ultimate heirs. 

3. Don't mention the kids when preparing your in-country will. In this case, you would prepare a will that leaves your property to your spouse and does not mention any children. In some countries, you need to explicitly state that you have no children. This can work as long as one of your kids doesn't contest the will. If they do, they will win.
4. Own the property through a structure or entity. This can be the best solution, although it's also the most complex. In this scenario, you create a corporation, LLC, trust or other entity and address succession within its structure or bylaws. The entity owns the property.
This works well and can eliminate the need for an in-country will. It can also reduce the eventual selling transaction cost because the property remains in the company's name. You simply transfer the company to the new owner. Note that this can also have tax implications, positive or negative, depending on the country, which you should discuss with your attorney.