Are you currently living abroad or planning to live overseas while still being a United States citizen? Are you aware of international estate planning for your family, but you aren’t sure how that works?
When living in the United States, it is easy to create an estate planning strategy that works well in a country where you understand the laws. Those rules change when you move overseas, and estate planning becomes more complicated.
If you are interested in international estate planning and want to learn more about how it affects you, continue reading below. This brief estate planning guide will cover what you need to know about it and who you can contact to take care of the entire process on your behalf.
United States Estate Tax Basics
The United States Treasury levies taxes on citizens who leave the states and work abroad. This means that your income is taxed while you work elsewhere.
In addition to that, you have to pay transfer taxes, regardless of where you live, die, or gift property. American citizens who work or live abroad are considered expats, short for expatriates.
An expat should expect to pay estate taxes upon death upon all of their assets worldwide. This includes any proceeds from a life insurance policy, real estate, personal property, and other available assets. You may owe estate tax on certain assets transferred to other people during a specified time before you pass away.
Estate Tax Law Changes
In general, most Americans don’t have any concerns about U.S. federal estate taxes due to recent changes in legislation. These changes significantly increased the gift tax and federal estate lifetime exclusion number to a higher threshold.
For example, there is now a 12.06 million dollar personal lifetime exemption, and interspousal transfers between spouses are unlimited. There is also a change to the portability of unused exemption to the surviving spouse.
This means that if someone does not fully utilize the first to die spouse exemption amount, there will be an election on that estate tax return. This election preserves the rest of the exemption amount for the second to die spouse.
International Estate Planning Challenges
Multi-jurisdictional estate planning issues aren’t new to international estate planning lawyers as they know full well the challenges that come with international estates. For example, an affluent family may savings accounts, trust funds, brokerage accounts, and several different properties all across the country.
In addition to the federal estate and gift tax regimes, you also have to consider the transfer tax of each of these states. They have the potential to impact the distribution of wealth to your surviving children, spouse, and future generations. Now, if you were to take that family and put them in a different country, you would have to consider the different jurisdictions and rules set out by their government.
Contrasting International Transfer Tax
Most states in America share the same estate tax laws with some differences, but they are nothing compared to the civil law systems of Europe, Africa, or Latin America. These civil law systems are based on Roman law, and they are more detailed and leave a far less interpretative influence on the courts. America runs based on a common law system, and these rules tend to have more concise statutes and provide more interpretive power to the courts.
Situs in International Transfer Taxation
Situs refers to the location of a specific asset or property for legal reasons. United States residents and citizens are subject to federal estate tax on their worldwide assets.
In contrast, a non-resident alien’s estate is subject to federal tax only on the U.S. situs assets. In essence, the situs plays an essential role in international estate planning for cross-border families.
Situs General
A general situs rule is that assets physically located in the states are subject to federal estate tax. Intangible property is a bit more complicated. For example, your asset can be non-situs for gift tax purposes but situs for estate tax purposes.
Any real property, such as structures, land, or fixtures located in the United States are situs. Intangible properties are investments. Any business investment fund used in conjunction with a United States business and held in a bank are United States situs.
Estate Planning Strategies
There are many different tools or solutions you and your international estate planning attorney can go over and use to maximize your estate. For example, your attorney can help you create a will that is either a United States will or one coupled with a will where you, the expat, accumulated property.
Other tools and planning strategies:
- Trusts: testamentary, irrevocable or revocable, QDOT
- Gifting strategies: trans-generational, inter-spousal
- College savings plans: 529 savings plans
- Cross-portfolio investment optimization
Most of these tools are well known by reputable tax professionals and attorneys who can help plan your estate. Of course, everyone’s situation is different, so one strategy may work best for someone and not so great for you. To make sure that you create the best international estate plan for your family, you may want to reach out to an attorney for guidance.
International Estate Planning Expertise
Estate planning is already a complicated task to do on your own, even in a country you’ve lived in all your life. International estate planning can quickly become overwhelming and complex if you aren’t too aware of how taxation works in those countries.
The last thing you want is to create a well-thought-out estate plan just for your descendants not to be able to access those funds or to have heavy taxes diminish what they receive. Contact us if you want to create an international estate plan that works best for you and your situation. We are here to walk you through the entire process and answer any questions you have.
