What is inheritance tax?
This is a tax or levy paid by a person who inherits money or property or other assets. It is variously known as succession tax, estate tax, estate duty or more colloquially, death duty. However, in some jurisdictions, inheritance tax is different from estate duty; while inheritance tax is applicable to the inheriting person, estate duty is levied on the estate of the deceased.
How can taxes be imposed on inheritance?
Inheritance levies may be directly imposed in the form of an inheritance tax or estate duty. Other taxes, charges and levies like gift tax, real estate transfer tax, endowment tax, property tax, income tax, transfer duties, wealth tax, capital gains tax etc may have a wide-ranging impact on inheritance ranging from the nominal to the significant.
Inheritance tax planning – who is it for?
Owners of family businesses and private companies, managers of private capital enterprises, executives of multinational companies, entrepreneurs and other High Networth Individuals (HNIs) including those who are internationally mobile.
Inheritance taxes can take a significant chunk out of a person’s estate/inheritance (going up to 40% or more in some jurisdictions); this could work out to considerable sums especially when a HNI’s estate is being dealt with.
Complications that may arise during inheritance
Intestacy – A condition that arises when a person dies without leaving behind a valid will.
Forced heirship – In some jurisdictions certain relations will have automatic inheritance rights regardless of the provisions in a will. These persons who are entitled to an obligatory share in the estate will have a monetary claim against the testamentary heirs, if appropriate provisions have not been made for them.
Filing obligations – The onus of making all the necessary filings, reports, forms filling and making necessary payments in most jurisdictions generally rests with the inheritor.
Treaties – The presence or absence of double taxation treaties or estate treaties may potentially add to the complexity surrounding inheritance.
International inheritance – Bequeathal / Inheritance of property located in international jurisdictions.
Common methods to legally minimize the impact of inheritance taxes
These can range from the fairly simple to complex to financial engineering!
Not all the above instruments are available in all jurisdictions. Moreover, a tax-saving instrument in one jurisdiction may clearly qualify for tax in another jurisdiction, making the task of planning much more complex.
How can an offshore bank help?
It can be seen from the above, that inheritance, especially when an individual has built up an international portfolio of assets located in various national/international jurisdictions, is a complex affair. Managing such complexity requires a diverse set of financial and legal skills spanning international jurisdictions.
Many offshore banks, such as Citibank International Personal Bank (IPB) Singapore, by their very nature, offer a broad range of international products, services and advisory solutions have the requisitely skilled teams in place to help individuals cope with, plan and manage complex, international inheritance issues. In addition offshore banks can help one to build a diversified portfolio leaving one less vulnerable to asset-class and market-related risks.