In the 21st century, we are having to report what we own and where we own it. How does this affect our loved ones?

In brief, Global Compliance is the reporting of our assets to the governments of whatever countries we hold assets in.

Many of us have had forms from banks around the world asking about our tax residency. This was started by the US in 2014 as part of the Foreign Account Tax Compliance Act, or FATCA. Since then, any financial institute around the world holding US clients’ money has to let them know.

As the USA raised over US$8billion in taxes from this initiative, most of the rest of the world (109 out of 195 countries) joined the OECD’s Common Reporting System (CRS) in 2016. This enabled these countries to gain access to people who should have been paying taxes to them. Some countries have also signed into  Global Forum on Transparency and Exchange of Information for Tax Purposes. There are 59 non-participating countries, but not many people would place their money here as it hard to get it out again.

Gone are the days where we could “hide” our money; the term “confidential” excludes the tax office anywhere in the world.

Most financial institutions (banks, fund houses, insurance companies, etc.) have to report to their government where their customers are from. This is generally not explained very well to the public, so individuals with disparate assets can end up with a bunch of forms and have no idea as to their importance. We often end up binning them or simply ignoring them. This has dangerous implications as banks can close our accounts resulting in our money getting lost in the systems for months.

The European Union has also introduced the Global Data Protection Act in July of 2018 requiring that we are “very careful” with whom we share our personal information due to the increased possibility of identity theft or other fraudulent actions. This applies to a person or company dealing with a European company.

This is the opposite of what we have to do with our money.

Many people are confused as to what to give, who to, how, when, and certainly why.

Confusion is widespread whilst we are living, so what happens when we die?

The Importance of Preparing a Will

Most families do not prepare schedules detailing assets and liabilities. So when someone dies everyone turns to the most straightforward form of assistance, generally a bank manager. Our ATM card is usually in our wallet/purse. Where else would we turn?

If you own a property, then title deeds would be looked for. If you own insurance, have you informed anyone? Have you placed other investments in a fund house or with a stock-broker? Do you own private shares?

Do you have digital assets? A crypto wallet for example. How does someone access these when you die? These particular assets are new to the probate world so how would anyone know about them? Have you prepared a digital will?

A successful estate plan includes provisions allowing family members to access or control your assets should you become unable to do so yourself.

Many times people have said to me that their inheritors “can sell the house” if funds are needed for school or property payments. The issue here is that your inheritors can only sell what they legally own. If, for example, your partner passes away and you wish to sell a property that is in their name, you will have to go through probate which can take months, sometimes years, even with a will.

The government to whom your assets are subject to will have a default will (intestacy rules), but most of us disagree with who they give our assets to, as well as their distribution. In Hong Kong, without a will, your spouse will receive 50% of your assets and the children the other 50%. This is often not practical if they are minors. In Hong Kong, your civil partner is not entitled to your assets when they die so you MUST write a will for each other. Many countries only give 1/3 of your assets to your spouse and 2/3 to your children.

What happens to our children if they are minors? Although guardianship can be dealt with separately, when we die we still have to ensure that our estate can continue to pay for everything we were paying for before we died. Those in charge of executing your will need to know how your children should be raised; should they continue to attend private school if they did so previously, for example.

Some of us have been fortunate and amassed significant wealth. This took us time though. How old do we want our inheriting children to be when they receive our assets? Our children become adults at 18 years of age, so if we do not write instructions to the contrary, they can receive all of our wealth at that age. For many, this is considered unwise, and their inheritance should be protected due to long-term considerations.

Numerous countries charge death taxes whereby a tax is imposed on our estate or to the heir when we die. The UK, for example, charges Inheritance Tax on a global basis (all of our assets globally are added up) if we are still UK Domicile when we die. Other countries, such as Australia and Canada, impose a tax on the transfer of the assets or at least capital gains taxes. America, depending upon the state, has the biggest allowance, but again imposes its tax on a global basis.

Additionally, many people want to make a donation to charities upon their death, but if they do not have a will stipulating this, it will not happen as intestacy laws do not include donations.

Family heirlooms may need to be passed down to the following generations, so it is imperative for this to be written down for the sake of your loved ones.

What about company shares? If you own a business and it is generating an income, what happens to that income when you die? Your loved ones (usually your spouse) will receive your shares, but what then do they do with the shares? Private company shares have to be protected by preparing an agreement with the company determining that the shares can be exchanged for their value on the occasion that a shareholder dies.

In the 21st century, there are many blended families and the last thing we want is for our loved ones to have to fight over our estate when we die. You should ensure that clear instructions are put in place to protect all of those you consider your family.

The more money we have, the more problems may arise, especially with global compliance, so it is important to ensure that what we own goes to the right people at the right time when we die.