Issues Regarding Cross-Border Estate Plans for Californians
Newspapers and the internet are filled with stories regarding foreign citizens immigrating to the United States and Americans moving to foreign countries to retire. One of the primary reasons for these moves is economic. The U.S. promises employment and pay superior to those outside the U.S. while Americans who are retiring find that the reduced cost of living in foreign counties allows them a better standard of living. Moving in or out of the U.S. presents challenges in estate planning and carrying out the plan upon death (Note: there may also be income tax issues but this summary will focus on the estate planning issues).
Issue 1: You prepared your estate plan under California law but later change your domicile to outside California. What court and laws will govern implementation of your estate plan?
When a resident of California relocates his or her domicile outside of California or the U.S., the courts of the State of California may lose jurisdiction over the administration of that individual’s estate. The courts of the state or country where you are domiciled at death will have jurisdiction over your estate and their laws will apply. Domicile is defined as the state or country where an individual resided at the time of his or her death with the intent to remain indefinitely.
The primary exception to the jurisdiction rule is where a person dies owning real property in California (unless the property is held in a trust, in joint tenancy or as community property) but he or she is domiciled elsewhere. In addition to whatever procedure is necessary under the laws of the jurisdiction the individual was domiciled at his or her death, a separate ancillary probate must be opened in California just to determine who will receive the real property located in California. Intangible property will be distributed according to your estate plan as interpreted by the laws of the state or country of your domicile. Personal property is assumed to follow the owner (decedent) and therefore will be governed by the laws of the state or country of domicile at death.
There are some exceptions to the personal property rule. Where an out-of-state resident’s personal property is located in California, an ancillary probate may be opened in California. For example, the right to exploit a deceased celebrity’s name, voice, signature, photograph or likeness is a property right for which an ancillary probate may be opened in California. A more bizarre example is a legal contest over frozen sperm devised to decedents girlfriend/beneficiary under an estate plan.
A rarer exception to the jurisdiction rule is where you die leaving a legal action available to you in California but you are domiciled outside of California at the time of your death. An example of a legal action would be where you were visiting California and were killed in an automobile accident. Your estate may have a legal action available against the other party for wrongful death in the California courts. Probate would be opened in California so your estate representative could pursue that action on behalf of your estate. Similarly, if at the time of your death and while you were domiciled outside of California, it is discovered that you have a contract dispute or had been defrauded in California, probate could be opened in California so that the legal action could be undertaken on behalf of your estate.
A serious consideration for an America relocating abroad is placing his or her real or personal property in a trust with an American trustee domiciled in California. Jurisdiction for Trusts in California is where the Trustee resides or where the trust is administered. Trusts become irrevocable upon death unless otherwise stated. If the trust is administered in California, it would be subject to administration under the laws of the State of California. Without a trust, if you have removed all of your property from California, then your new state or country of residence would have jurisdiction over your property.
Issue 2: You were domiciled outside the U.S. and prepared your estate plan outside the U.S., under foreign law, but later change your domicile to California. Is your will valid in California?
Pursuant to California Probate Code Section 6113, a will is valid in California if any of the following three conditions are met:
The will was executed in compliance with California law;
The Will was executed in compliance with the law prevailing at the time of execution at the place where it was executed; or,
The will was executed in compliance with the law of the place where, at the time of execution or at the time of death, decedent was domiciled, had a place of abode, or was a national.
A 1986 case, Estate of Guerrero is an example of a California court validating a Will executed in Mexico and interpreted its contents in conformance with California law. In Guerro, the decedent was a resident of California, executed his will while visiting Mexico, and he owned real property in California. If the document does not specify the laws to be used, the issue of which law to use turns on which jurisdictions has the greatest interest in applying its law. Because of Gurrero’s residency and owning real property in California, California had the greatest interest in administering the estate. An American living abroad, with property in the foreign country may have his estate and testamentary documents subject to the law of his country of residence.
Where a decedent was domiciled in a sister state, the California Court may make an order for preliminary distribution of all or part of decedent’s California personal property to his sister-state personal representative if it is in the interest of the estate or interested person. The California Court cannot order distribution of real property to an out of country personal representative but can order the sale and distribution of the proceeds.
There are limited exceptions to the use of foreign law in interpreting testamentary documents for ancillary probates: if the person died as a resident of California; if doing so would impair the rights of the surviving family members; or is contrary to public policy. In such cases, California law would apply.
Issue 3: You are a U.S. citizen who changes your domicile to a foreign country. What are the tax effects of such a change?
There are also income tax issues relating to assets located in California owned by non-California residents. For example, it is important to keep in mind that there may be state and federal income tax due on income derived from any such property located in California.
As you can see, there are a number of issues relating to cross-border estate plan and it is important to have your estate planning documents reviewed by a local attorney anytime you change your domicile to or from California or the U.S.