Estate Planning with Overseas Assets: What You Need to Know
In this month’s blog, Managing Lawyer, Taylah Hollands, breaks down the key considerations for Australians with overseas assets and offers clear, practical steps to keep your estate protected.
As global families become more common, so do international estates. If you have assets, beneficiaries or executors located outside Australia, careful planning is needed to minimise tax and ensure your Will operates the way you intend.
This guide outlines the key issues we see most often, and how to structure your estate plan so your wealth passes smoothly and tax-effectively.
Executors: Why a Non-Resident Executor Can Create Significant Tax Issues
Appointing an executor who is not an Australian tax resident can cause your estate to be treated as a non-resident trust, resulting in:
Foreign resident tax rates apply to any income earned by your estate after your death (loss of annual $18,200 tax-free threshold for first three years on estate income such as share dividends, interest, and rental income);
Possible loss of entitlement to refundable franking credits;
No 50% CGT discount on the sale of Australian real estate;
Purchasers potentially required to withhold 15% of sale proceeds.
Strategies to reduce the risk of such a tax burden to your estate include:
Appoint at least one Australian-resident executor; or
Appoint a resident lawyer or trustee company.
If you’ve got some overseas assets, book an appointment with us to talk it through.
Background:
James is an Australian resident and father of two young children who owns:
- His home;
- An investment property that generates rental income;
- A portfolio of Australian shares paying dividends;
- Substantial savings that earn interest in a term deposit.
In his Will, James leaves his estate to his two young children to inherit once they turn 18 years old. He appoints his sister Emily as his executor. Emily, however, lives permanently in Canada.
Problem:
Because Emily is not an Australian tax resident, James’s estate would be treated as a non-resident trust when he dies.
This results in these tax burdens for James’ estate:
- The estate loses the usual $18,200 tax-free threshold, so income such as dividends, rent and interest is taxed at much higher foreign-resident rates (starting at 30c per dollar in FY 25–26).
- If the estate sells the investment property, it may not qualify for the 50% capital gains tax discount normally available to Australian residents.
- A purchaser may be required to withhold 15% of the sale price and send it to the ATO before the estate can receive the balance.
- Any franking credits on Australian share dividends may not be refunded to the estate.
These unexpected tax consequences could significantly reduce what James hoped to leave for his children.
A Better Approach:
To avoid these issues, James could:
- Appoint at least one Australian-resident executor, such as a friend or relative living locally; or
- Appoint a resident lawyer or trustee company to act as executor and trustee.
Outcome
James chooses to name his Australian friend Mark as a co-executor alongside Emily. With at least one resident executor, the estate is not treated as a non-resident trust. This protects the estate from higher tax rates and helps ensure his children receive their inheritance with minimal tax erosion.
Shares: How Foreign Beneficiaries Can Trigger Capital Gains Tax
Capital Gains Tax – If your Australian shares are transferred to a foreign beneficiary, any net capital gain must be included in your final tax return (lodged by your executor), and the CGT will be paid by your estate.
Effect on your estate – This can create an unfair outcome. If the foreign beneficiary is part of your residuary estate, the CGT is triggered because of their tax status, yet they only share part of the tax burden while receiving the full benefit of the shares. This can leave other beneficiaries receiving less than you intended.
Specific clauses in your Will – Tailored clauses can help distribute your estate more fairly. These may include:
Allowing your executor to charge the CGT directly to the foreign beneficiary receiving the shares;
Making the transfer conditional on that beneficiary paying or reimbursing the estate for the CGT;
Making a specific gift of the shares, on the condition the beneficiary bears the CGT; or
Giving your executor a power of appropriation, allowing them to allocate CGT-heavy assets to beneficiaries in the most tax-effective way.
Background:
To recognise the work involved in being his executor, James wants to leave part of his estate to his sister, Emily, alongside his two young children.
Problem
Because Emily is a foreign beneficiary, if she receives the Australian shares, this will trigger CGT in James’s final tax return, paid from the estate. This reduces what James’s children receive, while Emily gets the full benefit of the shares but only shares part of the tax burden.
A Better Approach
James can add specific clauses to his Will so that:
- The CGT relating to the shares is charged directly to Emily;
- His executors have a power of appropriation and can allocate the shares to the children instead; or
- The shares are given to Emily as a specific gift, on the condition she reimburses the estate for the tax.
Outcome
By including one of these clauses, James protects his children’s inheritance and avoids an unfair reduction.
Real Estate: Additional Approvals, Fees and Taxes for Overseas Beneficiaries
Government approval – If a foreign beneficiary wants to inherit your real estate in-specie (as a property rather than cash), they must apply for government approval first. The fees are substantial and non-refundable if the application is denied, and significant financial or criminal penalties can apply if the property is transferred without approval.
Specific Will clause – You can include a clause in your Will that sets out who pays the approval costs (for example: if approval is granted, the beneficiary pays; if approval is denied, the estate pays).
Absentee owner land tax surcharge – A foreign beneficiary who is considered an absentee individual may be liable for an additional land tax surcharge.
Foreign purchaser additional duty – While property transferred under a Will is usually exempt from stamp duty, this exemption can be lost if the transfer does not strictly follow the Will. In those cases, the foreign beneficiary may need to pay stamp duty and foreign purchaser additional duty on any portion they receive beyond their entitlement.
Capital gains tax – If the beneficiary later sells the property, they may not be eligible for the 50% CGT discount.
Problem
As a foreign beneficiary, Emily must obtain government approval before the property can be transferred to her. For a $1,000,000 property, the application fee is $45,300 (FY 25–26).
A Better Approach
James can include a clause in his Will requiring Emily to pay the cost of this application.
Outcome
This ensures the fee is handled fairly and protects his children from any unexpected financial impact.
Cash Gifts: Income Tax and Exchange Rate Considerations
Present entitlement to estate income – If a non-resident beneficiary is entitled to income from your estate (such as rent, dividends or interest), your executor may need to pay tax on their behalf at non-resident rates. The estate would receive a separate tax assessment for this, and the beneficiary may also need to lodge their own return, though they may receive a credit for tax already paid.
Exchange rates – If a foreign beneficiary receives their inheritance in cash, currency fluctuations can affect whether their gift is equal to other beneficiaries. You can include a clause in your Will giving your executor discretion to take exchange rates into account when distributing your estate.
Inheritance tax – Australia does not have inheritance tax, but some countries tax their residents on inheritances received from overseas. We can work with advisors in those jurisdictions to help you understand the potential tax implications.
Family Trusts and Testamentary Trusts
If you are the trustee of a family trust, the role may pass to a non-resident when you die unless your estate plan prevents this, which can create significant tax issues for the trust.
When we prepare a Will that includes testamentary trusts, foreign beneficiaries are generally excluded while they remain non-residents to avoid these adverse tax consequences.
International Will Certificates
If you die with overseas assets, an Australian Will is not automatically recognised in that country. If the country is a signatory to the Convention Providing a Uniform Law on the Form of an International Will 1973 and has ratified it, an International Will Certificate can be added to your Australian Will. This increases the likelihood that your Will is formally accepted overseas and helps reduce administrative delays.
Wills in Multiple Jurisdictions: When You May Need More Than One Will
However, an International Will Certificate does not guarantee that the substantive parts of your Will, particularly those involving testamentary trusts, will be recognised or enforceable overseas.
Some countries, especially in Europe, do not recognise trusts at all. Depending on the type and location of your assets, local succession laws may apply regardless of what your Australian Will says.
We can work with an overseas lawyer to confirm whether the provisions of your Australian Will will operate as intended under that country’s laws.
Often, the most effective approach is to have a Will in each jurisdiction where you hold assets:
Overseas Will – prepared by a local lawyer to deal with assets in that country; and
Australian Will – covering your Australian assets and all other jurisdictions except where you hold overseas assets.
Provided the Wills are drafted carefully so they do not accidentally revoke one another, having multiple Wills can significantly reduce the costs and complexities for your estate, including:
Resolving conflicts of law;
Obtaining a reseal of the grant of representation;
Managing taxes, duties, government and court fees, legal costs and translation fees.
How We Can Help
Our experienced succession lawyers can help you plan for a tax-effective and seamless transfer of your wealth, giving you confidence that your affairs are properly managed, no matter where your assets or loved ones are located.
We also work closely with accountants, financial advisers and overseas lawyers to ensure all tax and jurisdictional issues are considered and addressed. This helps your estate pass in a fair and efficient way, and protects your beneficiaries from unexpected tax burdens.
Contact us today on (03) 9318 4188 or book an appointment to speak with us about your circumstances.
Disclaimer: This publication contains comments of a general nature only and is provided as an information service. It is not intended to be relied upon, nor is it a substitute for specific professional advice. No responsibility can be accepted by McManus & Co Lawyers or the authors for loss occasioned to any person doing anything as a result of any material in this publication.