A Guide to International Estate Planning for Cross-Border Families

Explore our guide to international estate planning for cross-border families. Ensure your assets are protected globally with expert advice.

 

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What Is International Estate Planning?

Estate planning allows you to organize your assets, minimize taxes and take care of your loved ones in your lifetime and when you’re no longer around. The estate planning process, though, is complex, and those who desire such plans often need help from professional estate planners to see things through.

The stakes are noticeably higher for those with assets or family in and outside the US concurrently. Preparing an estate plan in those circumstances is difficult because each country has its own estate planning rules and inheritance tax laws, which must be considered during the process.

Failure to follow each country’s rules could invalidate a person’s estate plan, exposing their estate and family to inheritance disputes and excessive taxes, sometimes in multiple countries.

If you belong to this category, the solution to your estate planning challenges is international or cross-border estate planning, that is, comprehensive estate planning in accordance with different national laws.

Just like regular estate planning, or perhaps more so, you’ll likely need professional help with your international estate plan. But before then, take some time to learn how international estate planning works and how it may benefit you and your loved ones.

Who Needs International Estate Planning?

International estate planning in the US typically applies to two categories of people as follows:

  • US citizens or individuals resident in the US but with assets/family outside the US

  • Foreign nationals who own assets in the US. 

Such individuals usually consider estate planning when they’ve accumulated a significant amount of wealth and are searching for effective ways to manage those assets during their lifetime or transfer them to their beneficiaries when they are no more. 

But you don’t have to wait till you’ve accumulated enormous assets before considering international estate planning. If you acquire more assets after preparing an international estate plan, your estate planning attorney can review and modify the plan to reflect your current circumstances. 

How International Estate Planning Benefits You

 

Ordinarily, having assets in different jurisdictions means that your beneficiaries would need to go through the probate process in the different jurisdictions where your assets are located before they can assume ownership when you’re no longer around.

For example, personal representatives to an estate in Washington DC where the owner lived outside of DC but had assets within the district, must go through a probate process known as a foreign estate proceeding before they can collect and distribute the assets. If the locations where you own property have similar requirements (which is often the case), your loved ones would need to go through several probate procedures before they can access their inheritance.

With an international estate plan, you can help your beneficiaries avoid multiple probate proceedings by choosing options that grant them unimpeded access to their inheritance at the appropriate time.

International estate planning is also an efficient wealth management tool with which you can protect your assets from excessive and sometimes double taxation across jurisdictions. For instance, the US has gift and estate tax treaties with several countries that allow US citizens and foreign nationals from the treaty countries to minimize their estate or gift tax liabilities regarding their assets in either country.

A skilled international estate planning attorney can determine whether you can benefit from any estate tax treaty and help reduce your estate and gift taxes accordingly.

Factors to Consider During the International Estate Planning Process 

The international estate planning process depends on certain factors, including the following:

Nationality

Nationality refers to the country where you hold citizenship. Every country has laws governing citizens regardless of where they live or work for estate and gift tax purposes. These laws often require citizens to pay estate or gift taxes whenever they transfer or inherit property. For instance, in the US, the federal estate tax applies to all US citizens and their worldwide assets regardless of where they live.

Some countries also have inheritance laws that compel individuals to pass down assets in a specific manner. These laws are generally called “forced heirship laws” and often require property owners to leave certain kinds of property to blood relations, regardless of their inclinations. The specifics vary with each country, but in many cases where such laws exist, it is illegal to leave the regulated property to a beneficiary outside the scope of the law, especially through a will.

If you’re in such a position, there might be legitimate ways to bypass such forced heirship laws and distribute your assets in a way you prefer. An international estate planning attorney can help you learn your options.

Domicile and Residency

Domicile refers to the country where you have a permanent home, while residency refers to the state or country where you happen to live for substantial periods but without the intention to settle there permanently. For example, a US citizen who lives in the US but attends college in the United Kingdom is domiciled in the US but resident in the UK during the school session.

Domicile and residency are important considerations in estate planning because they significantly determine the inheritance laws and tax implications applicable to a person’s estate. For example, in Washington, DC, the transfer taxes payable on a deceased person’s taxable estate differ for residents and non-residents. Non-residents only pay tax for “situs” assets, that is, assets located within the district. Other estate taxes are paid where the deceased was domiciled.

The same principle applies depending on whether or not the owner of the asset is a US citizen or lawful resident. This means that a modest amount of US asset ownership can result in significant estate tax liability for a non-resident (family) upon the asset owner’s death.

International estate planning cannot override these laws. Still, it can help you manage your financial affairs and prepare your loved ones for the future by helping you identify and choose the most beneficial asset management and inheritance strategies.

Some International Estate Planning Strategies for Cross-Border Families

There are several ways to effectively manage the conflict of estate planning laws caused by cross-border family relations and asset ownership. They include the following:

Trusts

A trust can help reduce or avoid estate taxes and ensure the smooth transfer of assets. Cross-border trusts are commonly used by those with interests in the US and Canada to achieve this goal. If you have a cross-border family, you can confirm whether a cross-border trust or any trust is appropriate in your circumstances from your estate planning attorney.

Multijurisdictional Wills

Drafting a valid will for each jurisdiction where you hold assets can ensure your estate is distributed according to your wishes while adhering to local inheritance laws.

 

Inter Vivos Gifts

Consider including gift-giving strategies as part of your international estate plan. You can help your beneficiaries avoid probate by gifting them property in your lifetime. Some gifts also make you eligible for tax concessions, making gift-giving a useful wealth management tool. 

Navigating Tax Implications and Inheritance Laws in Global Estate Planning

Understanding the tax implications and inheritance laws of different countries is paramount in international estate planning. Each nation has its unique set of rules that can significantly affect the distribution and taxation of assets across borders.

 

Tax Implications in International Estate Planning

When planning your estate internationally, it’s crucial to grasp the tax obligations in each jurisdiction where your assets are located. For instance, the U.S. imposes estate taxes on worldwide assets for its citizens and residents, while non-residents are taxed only on their U.S.-situated assets. This disparity can lead to unexpected tax liabilities, potentially diminishing the value of the inheritance you intend to leave behind.

Moreover, some countries have estate or inheritance tax treaties with the U.S., which can offer relief from double taxation. However, the absence of such treaties could result in your estate being taxed both in the U.S. and abroad. Engaging with a knowledgeable estate planner who understands these complexities can help mitigate these tax burdens and optimize your estate’s value for your beneficiaries.

Inheritance Laws Across Different Jurisdictions

Inheritance laws vary widely across countries, and understanding these differences is crucial. Some nations enforce “forced heirship” laws, requiring a portion of your estate to be allocated to specific family members, which might conflict with your wishes. For example, in some countries, a significant portion of your assets may be legally obligated to go to your children, regardless of your personal desires or relationships.

Additionally, the process of executing a will or trust can differ significantly, with some countries requiring a more stringent probate process than others. This can delay the distribution of your assets and increase the costs associated with estate settlement.

To navigate these challenges, it’s advisable to create a comprehensive estate plan that considers the specific laws of each country where you have assets. This might involve creating multiple wills, each compliant with the local laws of the jurisdictions where your assets are located, or establishing trusts that can bypass the probate process in certain countries.

By understanding and planning for the tax implications and inheritance laws in different countries, you can ensure a smoother transition of your assets to your beneficiaries, minimizing the potential for legal disputes and excessive taxation.

Can a Non-US Citizen Create an Estate Plan in the US?

Yes, non-U.S. citizens can create an estate plan in the US, especially if they own assets or property there. However, some unique considerations and potential complications might arise due to their non-citizen status.

  1. Estate Tax Considerations: Non-U.S. citizens are subject to different estate tax rules than US citizens. For example, as of 2021, US citizens and residents receive a substantial estate tax exemption amount (over $11 million). Non-U.S. citizen non-residents have a much smaller exemption ($60,000 in 2021) for U.S.-situated assets.
  2. Gift Tax Rules: Non-U.S. citizens may also face different rules for gift taxes, especially when giving assets to a non-citizen spouse. While gifts between US citizen spouses are typically unlimited and not subject to gift tax, gifts between a US citizen and a non-citizen spouse may be subject to gift tax if they exceed the annual exclusion amount set by the IRS.
  3. Jointly Held Property: Special rules apply if a non-U.S. citizen holds property jointly with a US citizen spouse. It’s not automatically assumed that each spouse owns half of the property for estate tax purposes.
  4. Qualified Domestic Trust (QDOT): This type of trust can be helpful for a US citizen married to a non-U.S. citizen. If the US citizen dies first, assets can be placed in a QDOT to defer estate taxes until the death of the non-citizen spouse.
  5. Domicile and Residency: How estate taxes are applied can also depend on whether a non-U.S. citizen is deemed a “resident” for US estate tax purposes. This doesn’t necessarily relate to immigration status but to the person’s intent to remain in the US and their connections to the country.
  6. Treaties: The US has estate tax treaties with several countries, which can affect how a non-U.S. citizen’s U.S.-situated assets are taxed upon death. It’s essential to see if treaty provisions apply to one’s situation.

Given the complexity of US laws and regulations regarding estate planning for non-U.S. citizens, it’s highly advisable to consult with estate planning attorneys specializing in international estate planning. They can provide guidance tailored to individual situations and help ensure that assets are protected and transferred most tax-efficiently.

Need Help With Your International Estate Plan? Kevin C. Martin, Attorney at Law, Can Help

If you have further questions about estate tax laws and international estate planning for cross-border families in Washington, DC, or you’d like to start with yours, we’d be glad to help at Kevin C. Martin, Attorney at Law. 

We understand the complexities of cross-border estate planning and can help you navigate the process to achieve a beneficial outcome for you and your family. Reach out to us immediately to book a free consultation. Let us help you manage your assets and set your family up for success.