Increasingly your charities are beneficiaries of estates with international aspects.  Your charity may be based in England and Wales (or the UK), but the legacy or share of residue your charity is left under a will may be in respect of assets anywhere in the world, whether, for example, a villa in Spain, investments in Dubai or bank accounts in California.

Collecting in foreign assets (or getting them liquidated) and advancing matters to the stage where distributions are possible can add further steps and complexity to an otherwise domestic estate administration.

For example, which nations law governs the administration of the particular assets and, if different, which law determines who is entitled to them?  Where there are multiple wills, do they deal clearly with assets in different jurisdictions, or do later wills inadvertently revoke earlier ones?  Is your charity's legacy subject to tax where the assets are located?  Do local forced heirship rules mean that your charity is to receive less?  These are just some of the additional issues which arise in relation to legacies of foreign assets.

At the initial stage, however, your charity will want to know who is supposed to deal with the foreign assets and, in practice, who can deal with them.  This note focuses on key aspects of what the executors of the will under which your charity benefits are obliged to do, what they ought to do and what they shouldn’t do in respect of foreign assets.

Is an English executor obliged to administer assets abroad?

Executors may assume that it is their role to administer estate assets wherever they are located.   However, there are practical and financial implications to consider: foreign assets may not pass to them, their English grant of representation may not be recognised abroad, and they may not be entitled to reimburse themselves from the estate for liabilities they incur in relation to assets that they are not obliged to administer.

The starting point in considering the scope of executors' duties to administer estate assets is section 25 of the Administration of Estates Act 1925.  Section 25 obliges executors to 'collect and get in the real and personal estate of the deceased and administer it according to law'.

You will see that this does not expressly deal with the location of the 'real and personal estate'.

However, there is ambiguity because the statutory provisions which introduced section 25 in its current form states that it shall 'extend to England and Wales only' (sections 9 and 14(3) of the Administration of Estates Act 1971).  This can either mean that the duty in section 25 extends to estate assets in England and Wales only or that only executors in England and Wales are under this duty.

The need for caution is highlighted by case law.  The court has said that executors do not have a duty to get in all assets – even in England and Wales – where specific assets are left to beneficiaries and are not required for the estate administration (Coutts & Co v Banks [2002] EWHC 2460 (Ch)).   The court has also said that executors may be obliged to get in foreign assets if they are needed to pay UK debts where English assets are insufficient (Re Fitzpatrick [1952] Ch 86, [1951] All ER 949).

The latter case came before the 1971 Act above and matters have of course developed.  But the overall message from these two cases, that it is likely to depend on the circumstances of the particular estate, remains.

Ultimately, the prudent way for executors to proceed is on an asset-by-asset basis, in difficult or appropriate cases seeking the consent of all beneficiaries or even applying for the court's directions before taking steps.

Is an executor entitled to deal with foreign assets?

In common law jurisdictions like England and Wales, the deceased's estate is held automatically by the appointed executors and, after collecting in the assets and paying liabilities, it is their role to distribute them to the beneficiaries.  In civil law jurisdictions, like France and Spain, the estate passes directly to the deceased's heirs.

In practice, even in England executors are likely to need a grant of representation before they can deal with the assets.  Third parties will want to rely on there being a grant before dealing with the executors (see the protection granted to third parties and displaced executors by section 27 of the Administration of Estates Act 1925).  

The starting point for the executors where there are foreign assets is to establish, by taking appropriate local advice, the extent to which the deceased's will is recognised as formally valid in the jurisdiction where the foreign asset is.

Recognition as to whether the will is formally valid establishes the English executors' authority.  However, that does not necessarily mean that the local system recognises the executor function. 

If the English executors' role in relation to the foreign assets is recognised, it is then necessary to establish what that role is in that jurisdiction.  

It is likely that in a common law jurisdiction English executors will need to apply for an ancillary local grant of representation or (if it is possible, as it is for example in Hong Kong or the BVI) for their English grant to be re-sealed (effectively meaning it is treated like a local grant).  The Colonial Probates Act 1882 lists the countries whose grants can be re-sealed in England, ie where there are already foreign executors appointed in respect of foreign estate assets who are required to take steps in England, and other countries have similar legislation.

In civil law jurisdictions it will be necessary to establish what the local rules are in relation to the English executors' role.  For example, Swiss cantons often recognise the executor function, but their rules effectively limit the function of the English executor to that of a transfer agent or conduit for the assets there (which will not have passed to the English executors).

Even where the EU succession regulation, Brussels IV, applies, and it is accepted by the local jurisdiction that the will of an English national deceased included an election that English law applies to their estate, there is not perfect uniformity.  Different notaries across the EU and even within the same EU state can take different approaches.  Occasionally it is necessary to 'shop around' to find an amenable notary.  English law may in theory be accepted as applying to the succession and administration, but it is still generally necessary to go through the local law procedures, eg requiring that beneficiaries formally accept their inheritance.   

Unlike in England, beneficiaries in civil law countries can be liable for the deceased's debts when they accept the deceased's assets.  So, an issue of importance for charities is the option to accept a civil law inheritance with 'the benefit of an inventory' which effectively limits their liability to the value of the inheritance they accept (as set out in an 'inventory').

In some civil law countries English executors  will need the heirs to grant them a power of attorney to deal directly with assets there.   Alternatively, English executors can agree with the beneficiaries and heirs to help facilitate progress and let the heirs and beneficiaries finalise matters directly with each other.

What impact do 'forced heirship' provisions have?

Some countries have rules which mean that, irrespective of what a deceased puts in their will, children or close relatives of a deceased are entitled to a share of a deceased's estate.   Forced heirship rules must be considered in the context of cross border estates, predominantly whether forced heirship is applied by the local law in that country and whether the local law applies in any event.  

In some countries, such as France, the relevant part of the estate is automatically reserved for the forced heirs whereas in other countries, such asItaly and Germany, the forced heirs have a claim against the beneficiaries under the will and there is generally one year for the forced heirs to challenge the will.  Where the rules offer more protection for the forced heirs, again such as in France, the limitation period can be much longer, even decades. 

To make matters more complex, in civil law systems when determining entitlements, it is usual for assets gifted by the deceased while they were still living to be brought into account. Forced heirs can bring an action against the recipient of the deceased's lifetime gifts if such gifts would defeat the forced heirs' entitlements. This may impact executors in England and Wales because English courts may have jurisdiction to determine such claims. 

Thought needs to be given as to whether there are any forced heirship considerations in the context of foreign assets and, if there are, how the laws of each of the countries where there are assets impacts on this.  Analysis will be required as to which system of domestic law applies, what the domestic law of that jurisdiction states and how the forced heirship provisions actually work in practice.  

Does English law necessarily apply? 

When considering who is to inherit (succession) and how beneficiaries are to receive foreign assets after payment of liabilities (administration) the first issue is to determine which law applies.  This is especially relevant where there are forced heirship considerations (discussed above).  This can ultimately dictate whether English executors have a role to play in relation to the administration of foreign assets.   

One must first identify the asset and locate its situs (the jurisdiction where it can be dealt with).   Knowing the location of an asset is key to determining which law applies to the succession, how the beneficiaries take possession of their inheritance (administration), and the tax implications of the succession.  

The situs state may apply its own inheritance law or the law of the state of the deceased's domicile, residence or nationality.  Sometimes this could lead to the situs state's own laws applying anyway, which we call a renvoi (eg the law of the deceased's domicile may conclude that it is the situs state's inheritance law that applies). 

The case of Ross v Waterfield [1929] All ER Rep 456 held that the English court is solely concerned to enquire what the courts of the situs country (for immovable assets such as foreign realty) and country of domicile (for movable assets such as foreign bank accounts) would decide.  

For example, where an English domiciled individual dies with a French property, the English court would look to the succession laws of the situs country in relation to that asset, ie France.  If France accepted the renvoi, French succession laws are likely to apply to the property.  

As can be anticipated, there are a lot of grey areas which can cause disagreement and a lot of uncertainty. The EU succession regulation (mentioned above) sought to simplify succession processes within EU member states and ensure that there is only one law of succession applicable to an estate in those countries that adopt the regulation.   The UK is not, and never has been, subject to the Regulation but it can still affect the role of English executors where testators own assets in other Member States. 

Which will applies if there is more than one?

It is not uncommon for individuals to have one will in each jurisdiction in which they have assets.   The intention may be that each will deals only with the assets in the jurisdiction in which it was made in order to make the administration 'easier' in the different jurisdictions.  But, if care isn’t taken, having more than one will can lead to later wills unintentionally revoking earlier ones.  A foreign will could include a general revocation clause that is not limited to revoking earlier wills dealing with the property in the same jurisdiction, or the relevant part of such wills.

As was seen in the early cases of Dempsey v Lawson (1877) and Re Phelan, the courts have been prepared to look beyond a revocation clause included in a later will if there is evidence that the testator did not intend to revoke earlier wills.  In determining whether the testator did intend a revocation clause to revoke a previous will, one factor that the court will consider is whether the subsequent will or testamentary instrument is complete in itself.

How the revocation clause is construed will, of course, depend on which country's rules of interpretation apply.   

Where there are foreign assets, English executors will want to know about other wills that deal with those assets.  If a foreign will appoints foreign executors, then there is likely to be very little for the English executors to do in respect of those assets.  Of course, there may be an issue as to whether the will appointing the English executors (if a later will) revokes the foreign (earlier will) and, therefore, the appointment of the foreign executors.  It will need to be determined which country's court should be the forum for such a dispute and the nature of the English executors' involvement, if any, in the proceedings.  

Is an executor obliged to pay UK Inheritance Tax in respect of foreign assets? 

Charities most likely won't pay any UK Inheritance Tax on UK or foreign assets left to them but there are occasions where tax is paid out of an estate before charities get their share, thus reducing the charities share. 

Generally, if the deceased died domiciled or deemed domiciled in the UK then the English executors have an obligation to both report to, and pay, HMRC in respect of UK Inheritance Tax on the deceased's worldwide assets.  If they were not domiciled or deemed domiciled, they only need to report and pay tax in respect of UK assets. 

Issues can arise where IHT is payable on worldwide assets but the executors do not have a role in relation to the foreign assets which pass to foreign beneficiaries who do not otherwise benefit from the estate.

HMRC may seek to pursue the English executors for the tax and leave them to recover it from the overseas beneficiaries and it may be difficult to enforce the executors' right to recover the payment against those beneficiaries in the foreign courts.

Is an executor obliged to pay foreign tax or debts?

A difficult question arises for English executors when the country where foreign assets are located is one which imposes its own estate or inheritance tax on executors.  Should the English executors pay the foreign tax?

The starting point (especially following Brexit) is the long-standing principle of common law that England will not enforce another nation's tax charges.  It is likely to be a breach of duty to pay a tax charge which is not enforceable, even if the will empowers them to do so (Bank of Nova Scotia Trust Co (Caribbean) v Tremblay (1998) 1 ITELR 673).  Therefore, executors who pay the tax (and thereby reduce the distributable estate) leave themselves vulnerable to a claim by the beneficiaries who have lost out.

That being said, if there are beneficiaries in the country which is demanding the tax and the authorities will go after them for the tax in place of the executors, it may be appropriate for the executors to pay the tax despite it not being enforceable against them in England.

English executors should seek advice and, before implementing their decision, they should seek the consent of their beneficiaries or alternatively make an application to court for directions (which may be necessary where there are other beneficiaries who are not able to consent , eg minors).  

A further consideration is whether the executors are entitled to double taxation/unilateral relief, ie effectively a tax credit for the tax payable on the same asset(s) in the two countries.

English executors should adopt the same caution in relation to the payment of foreign debts in case they too are not enforceable in England.  Where the enforceability depends on the foreign court's jurisdiction over the executors, they should bear in mind that the steps they may be taking in the other country in respect of the foreign assets could constitute submission to the foreign court's jurisdiction.  Of course, the foreign creditor may be able to enforce the debt against the assets in their jurisdiction in any event.  

Top tips

1. English executors may be obliged to collect in and administer foreign assets and may be obliged to report to HMRC and pay tax in respect of foreign assets.
2. Executors ought to take advice from an appropriate adviser and, if necessary, a local lawyer/notary in relation to the succession/administration of foreign assets.
3. Your charity ought to expect a well-advised executor to seek its consent for a proposed course of action in relation to foreign assets, or to be made party to a court application (eg where there are minor beneficiaries who are not able to consent).
4. Your charity may be able to challenge the treatment of costs incurred as 'estate expenses' if it has not approved the steps taken in relation to foreign assets.
5. English executors should not pay foreign tax or debts without first establishing that the liability could be enforced against them in England.

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