The transfer of foreign assets to the heirs will soon become an urgent issue for the first generation of wealthy Russians. What mechanisms exist to solve this problem?
Wealthy Russians keep a significant portion of their assets abroad. According to the National Bureau of Economic Research (NBER), Russian businessmen hold funds in banking and brokerage accounts in tax havens equivalent to about half of Russia’s annual GDP ($ 590 billion).
Dmitry Kip, Director of QBF Investment Banking Department, estimates that the moderately conservative investor with a large check has the following proportions in the foreign portfolio: 50% of capital – real estate, 20% – deposits, 15% – securities on a broker account or in trust, 5% – business (as a rule, shares in the company), 5% – the rest (funds and trusts, private loans, yachts, airplanes, art objects, automobiles, jewelry and metals lying in bank cells, etc.).
“For a conservative investor, the share of real estate can go up to 80-85%. These are mainly European properties (75%), North America (20%), Asia (5%), ”he adds.
The procedure for transferring a legacy of foreign assets is fraught with a lot of nuances and legal subtleties. In different countries – different terms of entry into the inheritance, and unclaimed assets often go to the state treasury. At the same time, the inheritors will have to collect funds that are not “fixed” by a notary, literally bit by bit, encountering obstacles related to bank secrecy and unwillingness to share information on customer accounts, as well as the lack of legal assistance contracts between specific countries.
In the Russian legal field
When preparing a will in the Russian jurisdiction, it is possible to include foreign assets in it. In this case, the procedure for transferring an inheritance can be applied both from the law of the country of which the testator was a citizen and in the country where the assets are located.
The testator must pay close attention to the legislation of the countries where the objects of inheritance are located. “Everything should happen to take into account whether Russia has specific agreements in the form of international legal assistance treaties with the countries where the objects of inheritance are located,” explains Alexander Zakharov, a partner at Paragon Advice Group. “Because if there are no such grounds, then it will be problematic to execute such acts on the territory of a foreign state, and you can only rely on the goodwill of foreign officials.”
Thus, the first thing worth starting a Russian testament, which includes foreign property objects, is to make sure that agreements are signed with this state that simplifies the recognition of Russian official documents on the territory of this country. Russia has such agreements with more than 100 states, including Germany, Bulgaria, Great Britain, Brazil, Denmark, Spain, and Ireland. Otherwise, you can not meet the deadline for the entry into the inheritance of another country, limited to 6-12, and in some countries even 3 months, lawyer Kaloy Akhilgov notes.
You also need to remember that in the EU since 2015 there is a law that changed the rules for inheritance of real estate. “The owner of the property with the help of the will can give preference to the law of the country of his citizenship, be it an EU country or any other. This law does not apply in the UK, Denmark, and Ireland, ”explains Ekaterina Markova, head of inheritance practices at UFG Wealth Management.
The difficulty of transferring business and shares through the Russian testament is that the testator must clearly identify the transferred assets. “It is necessary to indicate numbers, series, data on the issue of securities and other unique information. There are no provisions on the inheritance of business in Russian law, the procedure may concern only specific objects of ownership, ”explains the lawyer, chairman of the Moscow Bar Association Legal Aid and Protection, Olga Sulim.
To simplify the inheritance process, business assets can be transferred to a holding company. It is usually created for the organization and optimization of financial flows – including to address issues of inheritance. The holding company, while the heirs are undergoing the procedure of accepting the inheritance, can be managed by a pre-appointed executor of the will. Among the most popular jurisdictions for creating a holding are Cyprus, the United Kingdom, Luxembourg, Denmark, and the Netherlands.
Depending on the specifics of the assets, a Russian holding may be suitable, although a foreign holding, according to experts, is still preferable. “In this case, the heirs will not need to accept the inheritance in many different countries, but only in Russia. However, the law of the location of the holding company (for example, the BVI) may provide for the need to undergo a probation procedure to inherit shares, ”says Arslan Dyakiev, lawyer of the practice of providing services to private clients of PwC Legal.
With regard to the transfer of inheritance of securities – until the receipt of the certificate of inheritance (in Russia it is 6 months), credits, deductions, transactions, and operations can significantly change the value of the property. If this option is acceptable, the securities can be transferred to the account in the Russian depository.
“If we are talking about stocks and bonds of foreign issuers that are publicly circulating in Russia, there should be no problems with servicing and crediting to the securities account of the potential testator. If the papers do not circulate publicly in Russia, they can be credited to the depot account by a qualified investor, ”commented Sergey Volodkin, head of the legal support department for the activities of the professional participant of the Finam Group of Companies.
A will made for each specific foreign asset in the country where the property is located can also be a good solution. At the same time, it is necessary to analyze in advance the laws of which state will be applied to the inheritance of property in the future – the country of permanent residence, location of the property or the one whose citizenship is the testator.
As for movable property (shares and shares of companies, bank accounts, art objects, etc.), if the last place of residence of the testator is Russia, then regardless of the place of issue of the will, you must contact the Russian notary and get a certificate of inheritance for action border and already with this certificate to go to the country where the asset is located, explains Ekaterina Markova. Thus, if a property is inherited according to the laws of the country where it is located, then the inheritance of movable property of the testator permanently residing in Russia, proceeds according to the Russian rules.
In general, it is necessary to prepare for the fact that the procedure of drawing up a will, recognition of the validity of a document and other nuances of accepting an inheritance abroad may be contrary to the usual Russian order. If there is no certainty according to which laws and regulations property will be inherited, it is necessary to rely on the strength of a will on “unfamiliar” territory. In addition, heirs can simultaneously open hereditary cases in all jurisdictions, and for each foreign notary can request duplicates of the Russian will, says Ekaterina Markova. According to Stanislav Zingel, president of the international agency Gordon Rock, inheritance by law as a whole is even safer and involves less risk, since the law is virtually impossible to challenge, unlike a testament.
International Trust or Private Foundation
Such a tool as trust is becoming a common practice for wealthy individuals abroad, but in Russia, it has not yet become widespread. Moreover, Russian legislation does not imply the existence of trust funds but does not prohibit investing in them abroad.
The establishment of trust allows the owner to transfer the assets to the trust management of his chosen trustee. As a result, the status of assets becomes, in a certain sense, isolated, neutral from a tax point of view. According to interviewed experts, in a number of US states, a trust may protect against inheritance tax or a tax on the formation of income from a trust. According to the trust agreement, the circle of elected persons, including the founder of the trust, also becomes the beneficiaries of transactions with assets.