a baker's dozen of dangerous assumptions when ... - Minnesota CLE

A BAKER’S DOZEN OF
DANGEROUS ASSUMPTIONS
WHEN PLANNING FOR
TRANSNATIONAL CLIENTS
2013 Probate & Trust Law Section Conference
Jennifer Gumbel, Springer & Gumbel, PA
June 10, 2013

INTRODUCTION

13 DANGEROUS ASSUMPTIONS

WHEN TRANSNATIONALS
COME INTO YOUR OFFICE AND
YOU AGREE TO REPRESENT
THEM, YOU ARE CALLED TO
PRACTICE INTERNATIONAL
LAW

1. I NEED ONLY BE CONCERNED
WITH NON-CITIZEN SPOUSES.
There are far more individuals with
international implications to their
estates.

1. Individuals with foreign citizenship.
2. Individuals with US citizenship
domiciled abroad.
3. Individuals who may inherit abroad.
4. Individuals married to any of the above.
5. Individuals who have descendants
having any of the above.
** Individuals born abroad.

2. YOU MUST ONLY BE CONCERNED
WITH THE LAW OF TESTATOR’S
DOMICILE.
You must look further.

DOMICILE
Under Minnesota Statue 524.1-301, Minnesota probate
law applies, generally, to the “affairs and estate of
decedents, missing persons, and persons to be protected,
[who are] domiciled in this state”.
Black’s Law Dictionary: A person’s legal home. That place
where a man has his true, fixed, and permanent home
and principal establishment, and to which whenever he is
absent he has the intention of returning… Generally,
physical presence within a state and the intention to
make it one’s home are the requisites of establishing a
“domicile” therein.

For federal estate tax purposes, “[a] person acquires a
domicile in a place by living there, for even a brief period
of time, with no definite present intention of later
removing therefrom. Residence without the requisite
intention to remain indefinitely will not suffice to
constitute domicile, nor will intention to change domicile
effect such a change unless accompanied by actual
removal.” Treas. Reg. § 20.0-1(b).
DOMICILE = physical presence + at least
an intent to not leave.

BUT DOMICILE CAN BE PROBLEMATIC
FOR A TRANSNATIONAL
• Many people live in various jurisdictions , while
maintaining an intent to leave.
• Consider the New York court in In re Brunner's Estate,
“In times like ours of peripatetic families and multinational
situses for family property, original
protective decisions should be left in doubtful cases to
the domicile of the living rather than that of the
deceased (cf. Matter of Goldstein, 34 A.D.2d 764, 310
N.Y.S.2d 602).” 339 N.Y.S.2d 506, 510 (N.Y. Sur., 1973)
(affm’ed Matter of Brunner's Estate, 380 N.Y.S.2d 744
(N.Y.A.D. 2 Dept., 1976)).

OTHER JURISDICTIONAL TESTS
• Nationality
• Habitual Residence
• Situs

THE EFFECT OF THESE DIFFERING
JURISDICTIONAL TESTS, IS THAT EVEN IF A
CLIENT’S ESTATE WOULD FALL UNDER
MINNESOTA LAW UNDER OUR TEST, IT MAY
ALSO FALL UNDER THE OTHER LAW
ACCORDING TO THEIR TESTS. THE RESULT OF
THIS REALITY IS THAT A POSSIBILITY EXISTS
THAT AN ORDER APPLYING LAW THAT IS
VERY DIFFERENT TO OUR OWN COULD BE
MADE REGARDING OUR CLIENT’S ESTATE.

3. EVERY COUNTRY WILL APPLY
THE LAW OF SITUS TO REAL
PROPERTY.
Not necessarily so.

Example: Article 25 of the Introductory Act to the
German Civil Code, states that “succession is governed by
the law of the country of which the deceased was a
national.” But that, “[a]s to immovables located within
the country, the testator may, in the form of a
testamentary disposition, choose German law.”
The result of both Minnesota law and
German law illustrates possible renvoi.
Renvoi Doctrine: is a doctrine under which court in
resorting to foreign law adopts rules of foreign law as to
conflict of laws, which rules may in turn refer court back
to law of forum.

Recent changes in European Union law will, once fully
implemented, allow for a testator to select the law of
their habitual residence to even real estate located in a
member nation, under Regulation (EU) No 650/2012.
As we’ll see, the ability to get out of
foreign law, may be advantageous to our
clients.

4. A MINNESOTA COURT WILL NOT
APPLY A FOREIGN ORDER THAT
IS IN CONFLICT WITH
MINNESOTA’S OWN LAW.
Not necessarily.

“Comity is ‘[t]he principle in accordance with which the
courts of one state or jurisdiction will give effect to the
laws and judicial decisions of another, not as a matter of
obligation, but out of deference and respect.’ Black's Law
Dictionary 242 (5th ed.1979).” Desjarlait v. Desjarlait, 379
N.W.2d 139, 144 (Minn. App., 1985)
Example: “Recognition will not be withheld merely
because the choice of law process in the rendering
jurisdiction applies a law at variance with that which
would be applied under New York choice of law
principles”. Watts v. Swiss Bank Corp., 27 N.Y.2d 270, 317
N.Y.S.2d 315, 265 N.E.2d 739 (1970).

Example: “The Dutch court had the power to determine
Roebi's domicile and upon doing so, to determine the
substantive law that would apply to Roebi's estate. We
note that it is uncontroverted that the Dutch court had
jurisdiction in this matter. Glenda had notice and
opportunity to be heard, in fact she contested the issue
to the highest court of the land. Where a party has had
notice and opportunity to be heard and the foreign court
has satisfied Florida's jurisdictional and due process
requirements their orders will be entitled to comity.”
Nahar v. Nahar, 656 So.2d 225, 229 - 230 (Fla. App. 3 Dist.,
1995).
We can’t ignore the possible results of
applicable foreign probate law under the
belief that a Minnesota court would never
enforce a foreign court order.

5. ONLY A SPOUSE CAN TAKE
AGAINST A WILL.
Scarily, untrue.

Other jurisdictions, usually those with laws rooted in
Islamic law or Napoleonic Code and civil law, are far more
interested in protecting the estate for the benefit of
biological relatives, usually children or, in some cases, the
parents of the decedent. This legal regime is called
“forced heirship”.
Black’s Law Definition: Those persons whom the testator
or donor cannot deprive of the portion of his estate
reserved for them by law, except in cases where he has a
just cause to disinherit them

Pflichtteil Example: Section 2303 of the German Civil
Code (Bürgerliches Gesetzbuch)
Persons entitled to a compulsory share of the estate;
(1) If a descendant of the testator is excluded from
succession by disposition in the will he may demand his
compulsory share from the heir. The compulsory share is
one-half of the value of the share of the inheritance on
intestacy.
(2) The parents and spouse of the testator have the same
right if they have been excluded from succession by
disposition in the will. The provision of section 1371
(equalization of marital estate) remains unaffected.

With legal realities of comity, diverse
jurisdictional tests, and practical needs to
effectively transfer real property abroad, the
possibility of the application of forced heirship
should be evaluated by an estate planner. The
client should be made aware of the issue,
evaluation of the likelihood of its application in
the particular fact pattern of the client should
be made, and mitigation of its effects should
be explored. This may require including
counsel from the foreign jurisdiction in the
planning.

6. YOU CANNOT INHERIT DEBT.
Also, scarily, untrue.

“universal succession”
Black’s Law Definition: In the civil law, succession to the
entire estate of another, living or dead, though generally
the latter, importing succession to the entire property of
the predecessor as a juridical entirety, that is, to all his
active as well as passive legal relations.
Not only does the decedent inherit the good of the estate
upon decedent’s death, they inherit the bad of
decedent’s debts.

For clients who inherit in a foreign country, we
cannot let them take for granted that they
need only to wait for a check. Inquiry into the
view of universal succession, inheritance of
debts and disclaimer of inheritance should be
done, which may require inquiry with an
attorney licensed in the foreign jurisdiction. If
the jurisdiction transfers the bad of the estate
along with the good, serious evaluation of the
estate and communication with the personal
representative regarding the estate assets and
liabilities should be made.

7. THE ONLY WILL RECOGNIZED
EVERYWHERE IS AN INTERNATIONAL
WILL UNDER MINN. STAT. 524.2-1002
AND YOU MUST DO SUCH A WILL IN
EVERY INSTANCE.
Incorrect.

The 1973 Convention Providing a Uniform Law on the
Form of an International Will provides for unified
requirements to cause a writing to be valid in any
signatory country. Following these requirements allows
for a one-document fits all affected jurisdictions
approach to drafting a will, assuming all the jurisdictions
are signatory countries. The convention is a great help for
those living in an increasingly globalized society and can
be found at
http://www.unidroit.org/english/conventions/1973wills/19
73wills-e.htm

However, not every country has adopted this
Convention. If the country you are dealing with
is not a signatory to the convention, the
additional hoops you’ll put your client through
that cost time and money will probably not be
of any additional benefit to them. Not all, but
many jurisdictions recognize the validity of an
out-of-state or out-of-country wills as long as it
meets the requirements of where it was
executed. The decision whether to draft and
execute in conformance with the International
Will requirements under Minnesota Statute
takes further inquiry than merely asking if your
client’s estate may be involved in a foreign
probate.

8. YOU MUST DO A QDOT, IN EVERY
CIRCUMSTANCE OF A NON-
CITIZEN SPOUSE, TO AVOID
ESTATE TAX.
Somewhat controversially, I say
no.

Estates are generally granted an unlimited marital
deduction. However, 26 U.S.C. 2056(d) prohibits a marital
deduction in cases where the transfer is to a non-citizen
spouse.
The Code does allow for individuals with non-citizen
spouses to receive a marital deduction if property passes
to the non-citizen surviving spouse in a qualified domestic
trust (QDOT). The qualified domestic trust is required to
have an “individual citizen of the United States or
domestic corporation” as trustee. The trust must have
the ability to withhold estate tax applicable to
distributions from the trust and the trust must comply
with the collection of such tax.

Why not a QDOT?
• Estate below unified credit.
• Spouse likely to acquire
citizenship.
• Limited marital deduction
under applicable treaty.
• Option to disclaim into
QDOT.

No estate planning technique should be
automatically applied to all cases, including
a QDOT.
While a QDOT may be recommended for
many clients with a non-citizen spouse, a
good estate planner will inquire into the
current size of estate, likely increase in
estate, presence of marital deduction
through applicable treaties, and likelihood
that the non-citizen spouse will acquire US
citizenship before binding your client’s
estate to a QDOT plan.

9. A MINNESOTA COURT WILL NOT
APPOINT A FOREIGNER AS
GUARDIAN.
Perhaps they will.

524.5-204 JUDICIAL APPOINTMENT OF GUARDIAN:
CONDITIONS FOR APPOINTMENT.
(a) The court may appoint a guardian for a minor if the
court finds the appointment is in the minor's best
interest, and:
(i) both parents are deceased; or
(ii) all parental rights have been terminated by court
order.
If a guardian is appointed by a parent pursuant to section
524.5-202 and the appointment has not been prevented
or terminated under section 524.5-203, that appointee
has priority for appointment.

Potential Obstacles?
• The child's adjustment to home,
school, and community.
• The length of time the child has lived
in a stable, satisfactory environment
and the desirability of maintaining
continuity.
• Practical issues.

The decision to name a foreign guardian
takes an evaluation of the particular
situation of the family and discussion of
how to address practical issues.
Generally, if the parents feel that the
best choice to care for the child is a nonresident,
even knowing the child will
likely move to a foreign country, they
should make that desire known. There
may be little chance that a court would
name a non-resident as guardian, unless
they acquire priority through
appointment in the will.

10. APPOINTING A FOREIGNER AS
TRUSTEE OF A MINOR’S TRUST
WILL NOT HAVE TAX
CONSEQUENCES.
So wrong.

A domestic trust is any trust if: A court within the United
States is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons
have the authority to control all substantial decisions of
the trust.
In every other case, a foreign trust is created. If the trust
fails to make required filings, the US beneficiary can face
penalties starting at the greater of $10,000 or 5% of the
gross value of the portion of the trust's assets treated as
owned by the U.S. person and up to 35% of the gross
value of the distributions received from a foreign trust
for failure by a U.S. person to report receipt of the
distribution.

If your clients want to name a nonresident
as a trustee, they should be
counseled into considering a US
individual or corporate trustee to serve
as a co-trustee. You should provide a
detailed explanation, in writing, of the
risks of naming a non-resident trustee
under the IRS foreign trust rules.

11. A TRUST ESTABLISHED IN
MINNESOTA WILL BE
RECOGNIZED EVERYWHERE.
Nope.

The notion of trusts, and the separation of the right to
control and the right to benefit from property, is a long
standing notion in common law countries. But, this is not
a universal concept. Many civil law countries do not
recognize trusts. This can be problematic for transferring
real property located in such a jurisdiction. This can also
be problematic for the foreign trustee.
Back in the 1980’s, the Hague Convention on the Law
Applicable to Trusts and on Their Recognition sought to
resolve the issue by making jurisdictions, who do not
recognize trusts, at least recognize those established in
other jurisdictions. This convention can be of assistance
in those jurisdictions who are signatories. However, not
all countries are signatories.

For those of us in Minnesota
confronting possible non-recognition,
we should evaluate the need for
recognition in a foreign jurisdiction,
treatment of trusts in foreign
jurisdictions, and whether alternatives,
like business entities, resolves possible
issues. Again, conferring with foreign
counsel on these issues may be
necessary depending on the needs of
your client.

12. IF I WANT A DOCUMENT
RECOGNIZED IN A FOREIGN
COUNTRY, I NEED TO GO TO A
CONSULATE.
Not necessarily so.

Apostille System under The Hague Convention Abolishing
the Requirement of Legalization for Foreign Public
Documents
• Gives certain public documents the ability to be
recognized in signatory countries.
• Public documents include, “documents emanating
from an authority or an official connected with the
courts or tribunals of the State”, administrative
documents, notarial acts, “official certificates which
are placed on documents signed by persons in their
private capacity, such as official certificates recording
the registration of a document or the fact that it was
in existence on a certain date and official and notarial
authentications of signatures”.

In Minnesota, our Secretary of State
provides Apostilles to original or
certified copies of documents. The first
stop may not be trying to get your
document in front of a consulate; your
first stop should be to review the
signatories of the convention.

13. I DON’T NEED TO WORRY ABOUT
UNAUTHORIZED PRACTICE OF
FOREIGN LAW.
Sorry. You Still Need to Watch Out
for That.

In serving a transnational client, you should explore
concepts of international and foreign law. However,
don’t forget that even if you are convinced you clearly
understand the provisions of foreign law and its effect
on your client, you are not licensed in that jurisdiction.
Best practices dictate that you caution your client, in
writing, that including foreign counsel is advisable. You
should clearly explain, in writing, that you are not
licensed in the foreign jurisdiction. Failure to do so may
open you up to unauthorized practice of law claims in
the foreign jurisdiction.

WHAT IS THE EVERYDAY ESTATE
PLANNER TO DO?
• Research
• Co-counsel
• Refer

QUESTIONS?

TO CONTACT:
jgumbel@scottspringerlaw.com
(507)765-3600

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