Last summer I managed to take a short break from everything going on at home and slip away on a brief getaway with my family to one of the Greek islands. On the second day of the vacation, in the afternoon, I was sitting with a drink at the edge of the hotel pool, reading a book for pleasure, when the phone rang. On the other end was Haim, the son of one of my clients, who in recent years had been taking on more and more of the task of putting his father's real estate investments in order. I picked up the phone to answer and my wife, from the chair beside me, scolded me: “You're on vacation. Can't you take a time-out and enjoy the sunset? Nothing is on fire.” I put the phone back without answering. A few seconds later a text message arrived: “Dad passed away.” I was stunned. Abraham was a longtime client of mine, a smart and successful businessman who had invested heavily in international real estate. I had accompanied him in many deals, and I was always impressed by his strategic thinking and his ability to spot opportunities.
When I returned from the vacation I went, of course, to pay a condolence call. The widow looked truly broken, and so did all the other family members. I told them a few anecdotes from trips Abraham and I had taken together abroad, and they especially wanted to hear about the places where Abraham and I used to drink whisky at the end of the day. On my way out Haim asked me to step with him into one of the rooms of the apartment.
“We have 2 main matters to resolve immediately after the shiva (the seven-day mourning period),” he began. “To the best of my knowledge Dad left everything to Mom, so we will need to transfer the shares in Dad's companies abroad into her name. What worries me is that I don't know at all what the situation is regarding inheritance taxation in the countries where we have land. I'm really afraid of this entire move.”
“Finish the shiva, we'll meet and see what to do,” I replied.
The next morning I gave our intern the task of starting to scan the inheritance laws, with an emphasis on inheritance taxes, in each of the countries where Haim's father had assets, so that we would be ready for the meeting with Haim.
“I 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 the countries.”
“The less good news is that the process of transferring the shares may be complicated, especially in Romania,” I said.
“Why Romania in particular?” Haim asked with concern.
“Because the articles of association of the Romanian company make no reference to the case of death,” I explained. “Therefore, we will need to act in accordance with general Romanian law, which requires the consent of all the other shareholders in the company to transfer the shares to the heirs. Another option is to apply to the court to recognize Dad's will, after the Israeli Registrar of Inheritance issues a probate order, and then to ask the Romanian Trade Registry to carry out the transfer of the shares to Mom on the basis of the probate order.”
“I understand,” said Haim. “What about the other countries? How can it be that only in Romania it will be complicated?”
“In the other countries, the articles of association address the case of death and allow the transfer of shares to heirs in a relatively simple manner,” I replied.
“Sounds simple,” said Haim with relief.
“It is mainly a bureaucratic process that we will need to carry out in most of the countries,” I explained.
“I see, I was sure it would be much more complicated,” said Haim. “What's the next step?”
“The next step is to start the process,” I replied. “I have already contacted the local partners in each country to begin the proceedings. In the meantime, you will need to collect all the relevant documents, such as the probate order and the death certificate, and have an apostille affixed.”
“No problem,” said Haim. “I'll take care of it.”
The case of Haim and his family illustrates how important it is to give thought to drafting a company's articles of association, especially when it is a foreign company. Detailed and comprehensive articles can prevent a great deal of headache and unnecessary complications in the future. It is therefore important to be prepared for every scenario. When setting up a company abroad, it is recommended to include in the articles clear provisions regarding the transfer of shares in the event of death, even if it seems too early to think about it. These provisions should detail the procedure for transferring the shares to the heirs, their rights and obligations, and whether the approval of other shareholders is required. In addition, it is important to consult a lawyer who works in company and inheritance law to make sure the articles comply with the laws of the relevant country.
And a point we almost never think about when we buy property abroad - what tax will be imposed, if any, on our heirs. Inheritance tax laws vary from country to country. There are countries with no inheritance tax at all, in others first-degree heirs (spouse, descendants) are exempt, and in others there is an exemption up to a certain value of assets. In Cyprus, for example, there is no inheritance tax. In Portugal, by contrast, there is officially no inheritance tax. However, there is a stamp duty (Stamp Duty) that applies to the transfer of property by inheritance, and in certain cases it may reach 10% of the property's value. It is important to note that the spouse and descendants of the deceased are exempt from this tax. In Greece, there is a graduated inheritance tax (1%-10%), calculated according to the value of the property and how closely related the heir is to the deceased. The closer the family relationship, the lower the tax rate.
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית