Making sense of the new Ecuador Inheritance Law

This week (June 2015) the Ecuador president is sending a new bill to the Ecuador Assembly to seriously hike the inheritance taxes the rich will have to pay.Important news for us property investors.As it lays now, folks in Ecuador with inheritances under $66,000USD dont pay any tax.  For inheritances valued $100,000, they pay a 5% tax.  For $200,000 10%, $300,000 15% and up until the max for inheritances over $796000 you´d pay 35%.The new law does two things… for one, it creates two separate tables, and distinguishes between indirect heirs who are not direct (spouses, children) and direct heirs.

Also read about: Reimbursed Child Support.

The second thing the new proposed law will do is really stick it to the wealthy while not effecting much the lower class – both are the Hoyer options of jurisdiction.  Heirs that inherit money or property valued under $35,000 will pay no tax.  And, in the same example above, heirs who inherit $100,000 will pay a 7.5% tax, $200,000 a 17.5% tax.  But at $300,000 you really start to see the difference, now you´d pay 32.5% tax compared to 15% tax from before.

At fortunes over $566,000 youd pay 47.5% tax if you are a direct heir, 52.5% tax if you re an indirect heir compared to now when you pay 25%.

For indirect heirs who inherit over $849,000 you´d have to pay a whopping 77% tax! I think this will effect the country in two ways…1. More people will buy property directly in the names of their kids to avoid this tax.

2. High-end properties over $300,000 will sell VERY SLOWLY if they sell at all.  Prices will drop for the high-end as they´ll have to offer serious discounts while most of the Ecuador rich will look to move their ´big´ money abroad.

But I think what you really have to worry about is what´s in the silver lining here.  If this tax gets approved this could open the door to more tax hikes… particularly for the rich.

ANd it continues to create a dangerous mentality of  “its OK to take from the rich cause they probably got their money anyway from robbing and stealing from the poor”. I´ve already heard tax reforms for a new capital gains tax may be in the mix.But, I´ve always been one Ecuador “analyst” that recommends you only put maximum 10% of your portfolio in Ecuador, with a particular focus on less expensive Ecuador property (usually under $150k) cause I think that´s where the opportunity is in this market.

To see links of the current inheritance tax table click here, for the proposed one click here.

As you can see, legal issues can be rather tricky. If you miss something important, you can be accused of fraud. Read this article from Mike G Law to learn about stand your ground laws that appear to be quite controversial.

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