Generally, there are three factors that determine whether “international estate planning” is needed: foreign located deceased, foreign located beneficiaries, and foreign located assets. This is not always a straightforward process because the laws of different countries define residency/domicile and characters of assets differently. For example, a U.S. citizen who lives in another country with an intention to remain indefinitely is domiciled in that country. However, a person can keep domicile in one place while changing residences. Nomads who constantly move to different countries can keep a domicile in the U.S., while maintaining residences in several countries.
Recent changes to U.S. tax law mean that the vast majority of estates will not need to worry about estate taxes. The law will provide an $11.2 million exemption for each individual, which means that a couple can exclude $22.4 million with some planning. However, in the year 2026 the exemption will revert back to the level in 2017 which was $5.49 million. But what the U.S. has given in the form of an estate tax break, other countries may take. These laws also operate differently. For instance, while U.S. tax law taxes the estate itself, some countries tax the beneficiaries. Therefore, if a US citizen has beneficiaries who are citizens or residents of a different country, it is possible that transfer of assets at death can be taxed twice – to the estate (if the estate is subject to U.S. estate tax) and to the foreign beneficiary. Currently, the United States has estate tax treaties with 15 countries, which can help US citizens avoid double taxation.
Non-US citizens are generally not subject to US estate tax unless they are domiciled residents in the US. However, their estate exemption amount is only $60,000. Also, if a U.S. resident receives a gift or inheritance from a foreign source, such gifts may need to be reported to the IRS.
In addition to tax issues, the succession laws in foreign countries may differ from those in the U.S. Then there are the issues with admitting a foreign Last Will to probate in the U.S. Many states allow a foreign Last Will to be admitted if it is translated into English. However, if the Last Will uses terms not found in U.S. law, interpretation can be a problem.
The death of a loved one is difficult enough, and international issues make matters worse. Our Longmont estate planning team can analyze the tax laws and succession rules governing your estate and walk you through the process.