Global Inheritance: A Reality Check for Real-Estate Investors. How Do You Weather the Storm?

Last summer I managed to take a short break from everything going on at home and slip away for a quick breather with the family on a Greek island. On the second day of the holiday, in the afternoon, I was sitting by the hotel pool with a drink, enjoying a book, when the phone rang. On the other end was Haim, the son of one of my clients, who in recent years had been taking a growing role in sorting out his father’s real-estate investments. I picked up the phone to answer and my wife, in the chair next to me, scolded me: “You’re on holiday. Can’t you take a break and enjoy the sunset? Nothing’s on fire.” I put the phone back down without answering. A few seconds later a text came in: “Dad passed away.” I was stunned. Avraham was a longtime client of mine, a smart and successful businessman who had invested heavily in international real estate. I had worked with him on many deals and was always impressed by his strategic thinking and his ability to spot opportunities.

When I got back from the holiday I went, of course, to pay a condolence visit. The widow looked truly broken, and so did the rest of the family. I told them a few anecdotes from trips abroad Avraham and I had taken together, and they especially wanted to hear about the places where the two of us used to have a whisky at the end of the day. On my way out, Haim asked me to step into one of the rooms with him.

“We have two main issues to solve right after the shiva,” he began. “As far as I know, Dad left everything to Mom, so we’ll need to transfer Dad’s shares in his foreign companies to her name. What worries me is that I have no idea how inheritance tax works in the countries where we have land. I’m really nervous about this whole process.”

“Finish the shiva, we’ll meet and see what to do,” I replied.

The next morning I gave our intern a task: start going through the inheritance laws, with a focus on inheritance tax, in each of the countries where Haim’s father had assets, so we would be ready for the meeting with Haim.

“I’ve checked the inheritance and tax laws in all the relevant countries,” I told Haim when he came into my office. “The good news is that there is no inheritance tax in any of the countries where your father had assets.”

“Are you sure?” he asked. “I expected inheritance tax in at least some of them.”

“The less good news is that transferring the shares could be complicated, especially in Romania,” I said.

“Why Romania of all places?” Haim asked, worried.

“Because the Romanian company’s articles of association say nothing about the death of a shareholder,” I explained. “So we’ll have to follow general Romanian law, which requires the consent of all the other shareholders to transfer the shares to the heirs. The other option is to go to court to have your father’s will recognized, after the Inheritance Registrar in Israel issues a probate order, and then ask the Romanian Trade Registry to transfer the shares to your mother on the basis of that order.”

“I see,” said Haim. “What about the other countries? How can it be that only Romania is complicated?”

“In the other countries, the articles of association cover the death of a shareholder and allow the shares to pass to the heirs relatively simply,” I answered.

“Sounds simple,” Haim said, relieved.

“It’s mostly a bureaucratic process we’ll need to go through in most of the countries,” I explained.

“I see. I was sure it would be much more complicated,” Haim said. “What’s the next step?”

“The next step is to start the process,” I answered. “I’ve already contacted our local partners in each country to get the procedures going. Meanwhile, you’ll need to collect all the relevant documents, such as the probate order and the death certificate, and get them apostilled.”

“No problem,” said Haim. “I’ll take care of it.”

The case of Haim and his family shows how important it is to put thought into drafting a company’s articles of association, especially for a foreign company. Detailed, comprehensive articles can prevent a lot of headaches and unnecessary complications later on. That’s why it’s important to be ready for every scenario. When you set up a company abroad, it’s a good idea to include clear clauses on transferring shares in the event of death, even if it seems too early to think about it. These clauses should set out the procedure for transferring shares to the heirs, their rights and obligations, and whether the approval of other shareholders is required. It’s also important to consult a lawyer who specializes in company and inheritance law to make sure the articles comply with the laws of the relevant country.

And one point we hardly ever think about when we buy property abroad: what tax, if any, will be imposed on our heirs. Inheritance tax laws vary from country to country. Some countries have no inheritance tax at all, others exempt first-degree heirs (spouse, children), and others exempt assets up to a certain value. In Cyprus, for example, there is no inheritance tax. In Portugal there is officially no inheritance tax either. However, there is a Stamp Duty that applies to inherited assets, and in some cases it can reach 10% of the asset’s value. Note that the spouse and descendants of the deceased are exempt from it. In Greece there is a graduated inheritance tax (1%–10%), calculated by the value of the asset and how closely related the heir is to the deceased. The closer the family relationship, the lower the tax rate.