Money matters in the afterlife
As a financial advisor, I am occasionally approached by an expatriate whose spouse has died here in the UAE. In each case, the surviving family has quickly discovered that the death of a loved one can create several unforeseen problems for them as expatriates.
As well as the registering of the death, funeral arrangements and/or repatriation of the body, there are also several financial issues, such 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, in many such circumstances, I am only contacted after the death. I say unfortunately because there are often simple steps that could have been taken to mitigate much of the pain and hardship placed the respective families have had to face. Below, we examine each of these questions and offer some simple solutions to protect your family and ensure your estate passes to those you wish it to.
Residency
An expatriate's residency visa is cancelled upon their death. If the deceased has sponsored their family, their 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. However, there are two potential solutions for those wishing to stay in the UAE.
A new federal law has been launched 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 residency visas of the spouse and children 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 Pay
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 believe it is always best to work on the worst-case scenario and assume 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 Accounts
Many expatriates are still unaware that both individual and joint-name bank 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 when they are one of the accountholders) 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, school fees, food and clothing or even their return home.
However, only 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 the UAE.
A good solution is a United Kingdom offshore account, which offers tax-free savings as well as financial and legal regulation familiar to the expatriate. These accounts offer debit cards, cheque books and internet banking. These can be set up for most nationalities – so long as they can justify where the money is coming from and how they obtained it!
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 and so on)?different 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 it 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 uncertainty as some scholars believe foreign law should apply and the property distributed as per the deceased's will. As a result of this ambiguity, 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 to death taxes in your home country on your worldwide estate (unless you can change your domicile).
As an example, consider European nationals. Most countries in Europe tax citizens on their worldwide estates and non-domiciled residents only on assets in that country – that causes problems where there is no double taxation treaty (such as between Spain and the UK) and can result in death taxes in both countries.
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.
- Darren Ashley is founder and Managing Director of Candour Consultancy. Candour advises on the full range financial services. www.candourconsultancy.com
What can i do to protect my family?
- Have a will written that clearly states that it is drafted under the laws of your home country. This will ensure that foreign law will apply to your moveable assets rather than local Shariah law.
- If you do not already have an offshore bank account, establish one immediately and transfer the majority of your savings into it. Once probate is granted, an offshore bank account will be distributed as per your will.
- If you have a mortgage, ensure there is life assurance in place to repay this; removing the debt from your estate and make sure your family is mortgage-free. Not only will this remove additional financial stress from your surviving family and ensure the family home is not repossessed, it may also speed up the reactivation of the UAE bank accounts if there are no other debts attached to the estate.
- If you do not have sufficient savings for the family to live on, take out a second small life assurance policy for your family. These policies are international and will remain valid regardless of where you are residing in the world.
- If you own a mortgage-free UAE-based property, you could 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.
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