Failing to address any foreign assets you possess in your estate plan can cause unexpected outcomes. The good news is that with the help of an experienced estate planning advisor, you can structure the ownership of your foreign assets according to the laws of the U.S. and the country where they’re located. Here are a few issues you might encounter if your foreign assets aren’t properly addressed in your estate plan.
Beware of double taxation
If you’re a U.S. citizen, you’re subject to federal gift and estate taxes on all your worldwide assets, regardless of where you live or where the assets are located. So, if you own assets in other countries, there’s a risk of double taxation if the assets are subject to estate, inheritance or other death taxes in those countries.
You may be entitled to a foreign death tax credit against your U.S. gift or estate tax liability — particularly in countries that have tax treaties with the U.S. — but in some cases those credits aren’t available.
You’re considered a U.S. citizen if:
- You were born in the U.S., even if your parents have never been U.S. citizens and regardless of where you currently reside, unless you’ve renounced your citizenship, or
- You were born outside the U.S. but at least one of your parents was a U.S. citizen at the time.
Even if you’re not a U.S. citizen, you may be subject to U.S. gift and estate taxes on your worldwide assets if you’re domiciled in the U.S. Domicile is a somewhat subjective concept — essentially it means you reside in a place with an intent to stay indefinitely and to always return when you’re away. Once the U.S. becomes your domicile, its gift and estate taxes apply to your assets outside the U.S., even if you leave the country, unless you take steps to change your domicile.
With the federal gift and estate tax exemption amount set at $13.61 million for 2024, you may not be concerned about U.S. gift and estate taxes. But remember, the exemption amount is scheduled to revert to its pre-2018 level of $5 million (indexed for inflation) as of the beginning of 2026 (unless Congress acts to extend it).
Even if your estate is well within the current exemption amount, it’s a good idea to plan for a potential estate tax bill down the road. Further, for married couples, the rules are different — and potentially a lot more complex — if one spouse is neither a U.S. citizen nor considered a resident for estate tax purposes.
Coordinate two wills
To ensure that your foreign assets are distributed according to your wishes, your will must be drafted and executed in a manner that will be accepted in the U.S. as well as in the country or countries where your assets are located. Often, it’s possible to prepare a single will that meets the requirements of each jurisdiction, but it may be preferable to have separate wills for foreign assets. One advantage of doing so is that a separate will, written in the foreign country’s language (if not English) may help streamline the probate process.
If you prepare two or more wills, it’s important to work with local counsel in each foreign jurisdiction to ensure that the wills meet each country’s requirements. And it’s critical for your U.S. and foreign advisors to coordinate their efforts to ensure that one will doesn’t nullify the others.
If you own foreign assets, we can help you take steps to ensure they’re distributed in accordance with your wishes and in the most tax-efficient manner possible.
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