In the excitement of moving to - or establishing residency in - a new country, immigration procedures and concerns can overshadow other important legal and financial issues. Many people don't realize that relocating to another country requires re-thinking what would happen to your family and your assets if something happened to them. Cross-border ties can complicate who receives custody of your children, who inherits your assets, and how much your family has to pay in estate taxes, among other things.
Those issues vary depending on your immigration status, where your family members are located, and your financial circumstances. We regularly help multinational families and individuals navigate the moving pieces of planning across jurisdictions.
International Estate Planning Issues
If you are a U.S. resident and own assets outside the U.S., you should consider the following issues in planning your estate.
- Access to the assets in the event of your incapacity. It is important to have a power of attorney or some other legal document to allow a trusted person access to the assets in the event of your incapacity.
- Law governing who inherits the assets. The assets could be subject to the probate laws of the country in which they are located – which means they may not be subject to the terms of a U.S. will. Many countries apply inheritance laws that are very different from those in the U.S. Failure to account for those differences can in your estate plan can result in .
- Practical process of transferring assets upon your death. In addition to the As a practical matter, the transfer of assets outside of the U.S. to your heirs can cause delays and substantial expense, and your family may have to hire a lawyer in multiple countries. It is often recommended that you execute a will both in the U.S. and in each country where the assets are located. Be sure to coordinate lawyers in each country so that the wills do contradict each other.
- Estate/inheritance taxes in the foreign country. If you are a permanent US resident, all of your assets, worldwide, are subject to US estate tax. Assets in a foreign county, particularly real estate, may also be subject to an inheritance or estate tax in the country in which the assets are located, resulting in double taxation. Sometimes double taxation is mitigated by a foreign tax credit or a treaty.
Many U.S. citizens live in another country due to work, marriage, family connections, or because it is less expensive to retire there. Regardless of your reason for living abroad, you should be aware of the potential complexities that can affect your estate planning. Pay careful attention to the items below to protect yourself and your family.
- Incapacity Planning. A Power of Attorney and Healthcare Proxy (or Advanced Directive) are staples of legal planning in the U.S. A Power of Attorney authorizes someone to make financial decisions on your behalf if you are incapable of making those decisions yourself. Likewise, a Healthcare Proxy authorizes someone to make medical decisions on your behalf in the event of your incapacity. If you become incapacitated while living in a foreign country, a U.S. Healthcare Proxy may not be recognized there. Neither is a U.S. Power of Attorney likely to be accepted by a foreign financial institution or foreign. Be sure to consult with a local attorney to put in the relevant documents in place in the country where you're temporarily residing.
- Protection of Minor Children. The death of a minor child's parents while living in a foreign country can pose a substantial threat to the welfare of the child. No family members may be available to take custody of your child immediately, potentially resulting in the child becoming a ward of the foreign country. The child may be placed into the country's foster care system - or, even worse, an orphanage. While a U.S. court would ultimately appoint a permanent guardian for a child, there may be logistical hurdles to getting the child back to the U.S. If you have minor children, seek legal advice from an experienced U.S. estate planning lawyer, as welll as a lawyer in the foreign country, to put in place a coordinated plan to protect your child.
- Distribution of Your Assets. If you are living in the foreign country temporarily and plan to return to the U.S., your estate will likely be administered by and under the laws of the U.S. state to which you plan to return. Distribution of assets located abroad, however, can present complications and delays. Be sure to coordinate your estate planning across the countries in which you hold assets. (See Tab US RESIDENTS OWNING ASSETS ABROAD).
- Repatriation of Remains. Your estate plan should address your wishes for the disposition of your remains should you die outside the U.S. Repatriation of a body to the U.S. can be complicated and costly, easily exceeding tens of thousands of dollars. Make your wishes known in your will - or to your family members - and check your medical or travel insurance for repatriation coverage.
If you are a U.S. Legal Permanent Resident (also known as a Green Card Holder), you're likely to have family and financial ties in more than one country. Below are some common estate planning issues that arise for Green Card Holders.
- Guardianship of Minor Children. Foreign nationals living in the U.S. often wish to appoint a family member in their home country as guardian of their minor children in the event the parents passed away. While it is often in the child's best interest to be raised by family, the appointment of a foreign guardian can present legal and logistical challenges. A U.S. court may be reluctant to send the child to live in a foreign country, especially if the child is not a citizen of that country or if the country has different human rights standards than the U.S. Even if the court does appoint a foreign guardian, the process can be lengthy. For these reasons, it's important to appoint a back-up guardian who lives in the U.S. The guardians should be named in your will and in a temporary guardianship document.
- Choosing an Executor. Choosing an executor can also present a problem for foreign nationals. An executor is the person who is responsible for administering your estate when you pass away. This person typically retains a lawyer to assist them file the appropriate documents with the court and oversee the distribution of assets to your heirs. While people often choose a close family member to serve as their executor, in many states (including New York), a foreign resident who is not a U.S. citizen is not permitted to serve as executor without a U.S. co-executor. This can leave foreign nationals residing in the U.S. with a difficult choice.
- Assets Held Abroad. Many foreign nationals own bank accounts or real estate in their home countries. If you pass away while living in the U.S., your estate will be administered here. However, assets located abroad can present problems in the administration of your estate or in the event you became incapacitated. (For guidance, see Tab US RESIDENTS OWNING ASSETS ABROAD.)
- Foreign Inheritance. Many people are (pleasantly) surprised to learn that you generally don't have to pay any U.S. taxes on assets inherited from relatives who live abroad. However, If you expect to receive an inheritance from relatives who live outside the U.S., you may need to form
- Estate Tax Provisions for Non-Citizen Spouses. Married couples in which one spouse is a non-US citizen face unique estate planning challenges if they have substantial assets. Under US estate tax rules, married couples generally benefit from an unlimited marital deduction, which allows spouses to make unlimited gifts or bequests to each other without incurring any gift or estate tax. This deduction does not apply to transfers to spouses who are not U.S. citizens. Note, however, that a spouse can still make transfers up to the current gift and estate tax exemption ($5.49 million in 2017), including to a non-citizen spouse, without incurring any gift or estate taxes. A U.S. resident can also make non-taxable gifts to a non-citizen spouse of up to $149,000 per year (2017).
Immigrants to the U.S. living here on a temporary visa are subject to very different legal and estate tax rules than U.S. citizens or permanent residents. The administration of your estate will take place in your home country, not the U.S., and the laws of that country will apply to the distribution of your assets and the custody of your children. Nonetheless, certain limited planning should be done in the U.S. to protect your family while they are here.
- Planning for Minor Children. If both parents pass away while your family is living in the U.S., your children could be at risk of becoming wards of the state. When close friends and family members live nearby, a guardian can often be appointed fairly quickly. However, when those closest to you live in another country, sometimes tens of thousands of miles away, the appointment of a guardian for your children can be much more complicated. A permanent guardian in your home country will eventually be appointed, but weeks, or months can go by while paperwork and is processed. To ensure your children are protected during this time, it is critical that you put a plan in place for a friend or family member living in the U.S. to take custody of the children until they can safely return home and into the care of their permanent guardian.
- Planning for Incapacity. While the laws of your home country govern the distribution of your assets, the law where you are located governs who may make medical decisions for you in the event you are unable to make those decisions for yourself. On the other hand, the country (or state) where your assets are located governs who may access them in the event of your incapacity. While you are living in the U.S., you should have a Health Care Proxy to allow someone to make medical decisions on your behalf, if necessary, and you should execute a Power of Attorney for each country in which you own assets.
- Estate Tax Planning. U.S. estate taxes can be harsh on foreign nationals who purchase real estate in the U.S. As outlined below, non-residents are taxed at 40% on the value of all U.S. assets exceeding $60,000 at the time of death.
Foreign investors benefit from a number of income tax breaks when investing in U.S. assets. Unfortunately, that favorable treatment does not extend to U.S. estate taxes. As outlined in the chart below, U.S. assets held by foreign investors at the time of death are subject to a 40% tax, with a mere $60,000 exemption.
With the complications and burdens of U.S. tax laws, it can be tempting to give up your citizenship or green card in order to get out from under the IRS's thumb. Before giving up your citizenship or your green card, be sure you understand what the consequences are. Harsh rules targeted at wealthy residents attempting to evade taxes can leave you and your family with a whopping tax bill years down the road.
The expatriation rules apply only to "covered expatriates." You become a "covered expatriate" if:
- You relinquishment U.S. citizenship, or you abandon a green card after holding it for more than seven years; and
- You fall into one of the following three categories:
- You have a net worth in excess of $2 million;
- You have an average U.S. income tax liability of $162,000 (in 2017) for the previous five years; OR
- You fail to certify compliance with U.S. tax laws for the last five years.
There are two tax consequences of being a covered expatriate.
- Exit Tax. You are subject to an exit tax, which constitutes an acceleration of unrealized taxes on any capital gains that exceed $699,000 as of the date of exit.
- Estate Taxes on U.S. Beneficiaries. Any assets gifted or bequeathed to U.S. citizens or residents are subject to a 40% tax. There is no amount that is exempt from this tax. If you have children who are, or are likely to be, U.S. citizens or green card holders, they may end up paying a hefty tax if you expatriate. Be sure to take this into consideration when weighing the consequences of expatriation.
If you are considering relinquishing your U.S. citizenship or a long-held green card, be sure to consult with a tax professional who is familiar with expatriation prior to taking action. If you are a green card holder, consider the consequences of expatriation prior to your 7th year as a permanent U.S. resident. The expatriation tax does not apply to permanent residents who abandon their green card prior to the end of their 7th year.