Many Brits own property in the United States but most of them don’t plan the way in which their property located in the United States will pass to their heirs at the time of their death. This is extremely important given the fact that local State law regulates all inheritance and estate matters regarding property located in U.S. In this article we will explain some of the elements which are common to the different State laws but we always recommend taking into account the applicable local rules when seeking advice on inheritance and estate planning matters.
The general rule in the U.S. is that the law of the State where decedent was domiciled at death governs the disposition of personal property, and the law of the State where the decedent’s real property is located governs the disposition of such property. For foreigners not domiciled in the U.S. the rules of the State where the property is located generally apply for all types of property. British inheritance laws will not apply to any property located in the United States owned by British decedents.
When a person has not disposed of his or her assets by a Will, or if the Will is not valid for any reason, the assets are distributed through a method known as “intestate succession”. The rules that determine how the estate passes vary from State to State. For instance in New York a surviving spouse is entitled to the entire intestate estate if the decedent is not survived by children. However, under California intestate laws if a decedent is not survived by children but is survived by his parents then they receive one half of the intestate estate and the spouse receives only the other half.
The adequate execution of a Will allows the owner of U.S. property to determine the way in which his or her property will pass upon his or her death. For a will to be valid the person making the will, also known as the testator, must meet the formal requirements imposed by the appropriate State laws. Most states require the following formalities:
(i) the will must be signed by the testator, or in by another person at the testator’s direction,
(ii) there must be two attesting witnesses (a few states require three),
(iii) the testator must sign the will in the presence of the witnesses and the witnesses in the presence of the testator.
Under the law of many states a foreign will is admissible to probate if it has been executed in accordance with the laws where it was executed and complies with the basic requirement of the laws of the State where the will be probated. In Florida for example a will executed in Britain will be accepted for probate if it is valid under British law as long as the same is not a “nuncupative” will (a will verbally dictated by the testator to another person) or a holographic will (a will not attested by witnesses).
The final settlement of the estate of an intestate decedent is usually made through a process known as Estate Administration which is usually supervised by a Court. Intestate estates may not need to be administered if the heirs are able to agree as to the distribution of the property; however, they are often administered to clear any creditors’ claims and to ensure clear title in the heirs. The administration of an estate usually involves the need of hiring local attorneys and therefore may be costly. It is ironic that many foreigners fail to draft a Will in the U.S. or seek counsel for estate planning fearing the legal costs when those costs can be substantially lower than those entailed by an Estate Administration.
When a person executes a Will the estate must go through a form of administration known as Probate in order for the decedent’s property to be distributed. In many States this process is overseen by a Court and as in the case of an intestate estate the heirs and estate may need to hire an attorney. The potential costs of probate procedures make estate planning an important thing to take into account when owning property in the United States.
In order to avoid the potential costs of probate and estate administration a foreigner owning property in the United States may use certain instruments that allow the property to pass through means different than a will. Some of these instruments are:
- Joint tenancy property. Under this type of property ownership the decedent’s interest in the property vanishes upon death and the survivor only needs to file a death certificate in the public records in order to perfect his or her interest in the property. No probate or other court proceedings are required. This is different than tenancy in common in which each owner owns its proportionate share of the property. For instance, if the property is owned by two brothers, George and Michael, without specifying the percentage that each owns in the property the will be presumed to own 50% each. Upon the death of George, George’s heirs will have to go through a probate or estate administration process to receive his proportionate share of the property and Michael will keep his 50%. By contrast in a joint tenancy, upon the death of George, Michael would automatically own all of the property and George’s heirs will not have any rights to the property.
- Trusts. When property is transferred in trust, the trustee holds the property for the benefit of the named beneficiaries. Depending on the terms of the trust at the death of the grantor the assets are distributed to the beneficiaries or held by a third party (the trustee) until the time of distribution as determined by the grantor under the trust document. No probate or other court proceedings are required. In this case title to the property will pass privately to the beneficiaries in a lawyer’s office through the execution of private documents.
An adequate estate planning in regards to your property located in the United States may save your clients legal fees. Furthermore, as we will discuss in our next chapter about US inheritance laws, the taxation of estates is a complicated matter that may also prove very costly for their heirs. These matters may also be resolved in advance through an adequate estate planning.
Marcel Felipe is a Partner and Natalia Munoz is an associate in Marcell Felipe Attorneys and International Lawyers – a firm with offices in Florida and London who specialize in foreigners’ US legal problems. They are linked closely to – and share offices with – The International Law Partnership LLP, who are a specialist firm of English International Lawyers. Daniel Theron is a lawyer and head of the US Department at The International Law Partnership LLP.
If you would like more information, please contact:
The International Law Partnership LLP
Solicitors & International Lawyers
The Vaults
193-197 High Holborn
London
WC1V 7BD
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