Efficient ownership of assets

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Do you own your assets in an efficient manner?

Thinking about whether your assets are owned efficiently can be the first step in creating an effective multigenerational wealth plan for the benefit of your family after your lifetime. This is particularly important if you own assets situated in different jurisdictions or have family members who reside in different jurisdictions. This is because your assets may be subject to the ownership rules and regimes outlined below, and this may result in your intended beneficiaries not receiving the assets or benefiting in the way you intend. Thinking about these issues now can help you to:

  • manage estate tax risk in multiple jurisdictions
  • avoid potentially lengthy probate proceedings (the legal process of establishing the validity of a will and the subsequent administration of a deceased person’s estate by an executor)
  • control how your assets are distributed after your lifetime, and
  • reduce the risk of disputes among your beneficiaries

Your assets can be distributed in a number of different ways. These include:

  • by right of survivorship with jointly owned property – meaning the property is not subject to probate proceedings
  • according to the terms of a will - following probate proceedings
  • in the absence of a will, according to applicable intestacy laws – which govern the administration and distribution of a person’s estate after their lifetime
  • according to applicable forced heirship laws – some jurisdictions protect specified descendants by giving them fixed percentages of a deceased person’s estate
  • according to the terms of a succession trust – meaning the property is not subject to probate proceedings
  • to named beneficiaries for certain financial and insurance accounts

How you own your property matters

You may be the sole owner of some of your assets. However, others from bank accounts to real estate are often, for practical reasons, owned jointly. There are different forms of joint ownership, some of which may result in unintended consequences.

For example, if you own a bank account with another person as tenants in common, each owner owns a specified share of the property. If an owner dies, their share can pass to their beneficiaries in a number of different ways depending on your circumstances. For example, as specified in your will, or in the absence of a will according to intestacy laws, or according to forced heirship laws.   

Alternatively, if you own real estate with another person as joint tenants with rights of survivorship you are both treated as owning the whole of the real estate rather than a part of it. In the case of one owner’s death, the surviving owner would inherit the deceased owner’s share of the property without having to go through the probate process.

In some jurisdictions property can also be jointly owned as community property by married couples. This generally means assets acquired by either spouse during the marriage. If a spouse dies, their share of the community property will be distributed according to the terms of the applicable community property regime. It is common for property acquired during a marriage to be divided equally and to provide that some assets are to be excluded for example in the situation where certain property was inherited or acquired before the marriage.

Establishing a succession trust during your lifetime often plays a key part in a multi-generational wealth planning exercise, especially when assets are owned in multiple jurisdictions. Your trustee has legal title to trust assets which are held and managed for your named beneficiaries according to terms specified in a trust document.     

Holding assets in a succession trust can:

  • facilitate efficient multi-jurisdictional estate planning for your assets
  • ensure that your assets pass to your chosen beneficiaries
  • avoid your assets being subject to probate proceedings
  • manage estate tax risk

Trusts are often used to designate beneficiaries in life insurance policies, where you choose who receives the payout on your death.

The most efficient way to own your assets may be affected by:

  • where you are a tax resident
  • where your beneficiaries are tax residents
  • the location and type of asset, and
  • your estate planning goals

Always remember that your circumstances and plans can change. It is sensible to review matters periodically with your independent legal and tax advisers.

KEY TAKEAWAYS:

 

Efficient ownership of your assets can help you manage estate tax risk and avoid unwanted outcomes and restrictions over how your wealth can be distributed after your death.

Owning assets jointly with rights of survivorship or holding them in a trust ensures they are not subject to the probate process.

Remember to review your wealth plan periodically with your legal and tax advisers to adjust for any life changes.

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