Expatriates Beware- Protect your assets

Expatriates Beware- Protect your assets - Must Read

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Expatriate Wills: Protecting your assets for your family
Over the past year, I have been approached by three separate expatriates whose spouses have died whilst resident in the UAE. In each case, the surviving family had quickly discovered that the death of a loved one can create several problems for them as expatriates in the UAE.
United Arab Emirates: Monday, April 13 - 2009 at 16:32


Expatriate employees should ensure that they have a valid Will




As well as the registration of the death, funeral arrangements and/or repatriation of the body, there are also several financial problems.

These can be summarised as:

What happens to the surviving family's residence visas?
Is severance payable?
What happens to UAE-based bank accounts?
How are UAE-based assets distributed on death?
Are there death taxes on the inheritance?

Unfortunately, I was contacted after the each death. I say unfortunately because, in each case, there were simple steps which could have been taken to mitigate much of the pain and hardship placed on the respective families.

This month, we review the each of the five questions above and offer some simple solutions to protect your family and ensure your estate passes to those you wish it to.

Residency status
An expatriate's residency visa is cancelled upon their death. If the deceased has sponsored their family, the family's visas will also be cancelled at this time as they no longer have a sponsor. The surviving family then have 30 days in which to leave the country.

There are two potential solutions for those wishing to stay in the UAE.

A new Federal Law has been announced that will allow six month renewable residency visas to freehold property owners in the UAE. As a property does not die with its owner, the spouse's and children's residency would not be cancelled if they are attached to the property rather than the deceased's employment.

Secondly, if both spouses are employed, both should be sponsored by their respective employers (rather than one spouse being sponsored by their partner). This too would mitigate both spouses' visas being cancelled and the children could easily be switched to the surviving spouses' visa if required.

Severance payouts
In most cases, severance pay will be due to the heirs of a deceased employee. However, the employer does not have to pay this until proof of the legal status of the heirs is provided by either a valid Will, or by a court order.

The application of this rule is flexible and, in a large part, will depend on the willingness of the employer to pay the severance benefit. I would suggest that is always best to work on the worst case scenario and assume that this money will not be readily available, just in case the employer does not want to release the money as early as they could.

UAE bank account provisions
Many expatriates are still unaware that both individual and joint name banks accounts will be frozen on an expatriate's death. Consequently, a surviving spouse will not have access to money in a joint name bank account (even where they are one of the account holders), or any account which is in their spouses' name.

These accounts will remain frozen until probate is granted and all the deceased's debts in the UAE (including parking tickets and other fines) are repaid. The procedure for reactivating bank accounts is complex and it can take up to 18 months for the Courts to name the beneficiaries to whom the monies should be paid.

Obviously, this can create major problems if the majority of an expatriate's savings are in their UAE account. The surviving family will have no money (for up to 18 months) to pay the rent or mortgage, the utility bills, food and clothing, education fees, or even their return journey home.

However, only the UAE-based bank accounts are frozen so this does not affect savings in other countries. Consequently, this problem can be simply avoided by establishing an offshore bank account outside of the UAE. A good solution is a UK offshore account which offers tax-free savings as well as financial and legal regulation familiar to the expatriate. These accounts also offer debit cards, cheque books and internet banking for easy access to savings.

I would suggest holding three months' salary in the local UAE account for day-to-day living and to cover any unforeseen emergencies. The rest can then be transferred to an offshore account where it is protected and can easily be accessed if required. If money is transferred offshore on a quarterly basis (as opposed to every month) this will reduce the bank transfer fees and help liquidity.

It is also important to note at this stage that, if there is not enough money in your offshore account to live on for 18 months, a small life assurance policy (written in trust) will easily provide quick access to cash for a small monthly premium.

UAE succession laws
The UAE treats movable assets (such as cash, investments, cars, etc...) differently to immovable assets (property) for inheritance purposes. Generically speaking, movable assets will be frozen until all debts have been repaid and probate is granted. These assets will then be distributed as per the law of the expatriates home country - but only if this is clearly requested in their Will.

The UAE Civil Code states that immovable assets should be distributed as per UAE (Shariah) law. As an expatriate's UAE real estate is an immovable asset, technically this should be distributed as per Shariah law. However, there is currently some uncertainty, as some scholars believe that foreign law should apply and the property distributed as per the deceased's Will. As a result of this ambiguity, more and more bodies are calling for new laws or clarification of the existing laws.

At present, it is likely that the UAE Courts will decide on the applicable law on a case-by-case basis. This means there is no guarantee that the Courts will apply foreign law over Shariah law. Additionally, many foreign jurisdictions refer immovable assets back to the laws of the country where they are located so the property would still fall under UAE law.

Inheritance tax
As a low tax environment, there is no inheritance tax in the UAE. However, as an expatriate, you are still liable for death taxes in your home country on your worldwide estate (unless you have changed your domicile). Consequently, your UAE-based assets will be liable to death taxes in your home country even if you have not lived there for several decades.

It is also important to remember that, whilst there are no death taxes in the UAE, there will be a property transfer fee in the UAE when the property is re-registered from the deceased to their heirs.

What can I do to protect my family?
The first thing you should do is make a Will which clearly states that it is written under the laws of your home country. This will ensure that foreign (your home country) law will apply to your moveable assets rather than Shariah law.

As discussed above, if you do not already have an offshore bank account, set one up and transfer the majority of your savings into that account.

If you have a mortgage, ensure there is life assurance in place to repay this; removing the debt from your estate and leaving your family mortgage free. This will help reactivate bank accounts quicker and ensure the family home is not repossessed.

If you do not have sufficient savings for the family to live on for the 18 months, take out a second small life assurance policy (written in trust) for your family.

If you own a mortgage-free UAE based property, you could also transfer the ownership of the property to an offshore company (with all your family members as Directors). This will avoid the property being distributed as per Shariah law as the company does not die when you do.

As your shares in the company are overseas, they will be distributed as per the laws of your home country and therefore your wishes. However, it must be noted that this option is expensive (company formation plus property transfer fees) and, as no UAE banks currently lend to offshore companies, it is only applicable to those who have no mortgage commitments.