The adoption of the European Parliament's European Succession Regulation in 2012 simplified estate planning in the European Union. The regulation also resolved jurisdictional and choice of law issues. Unfortunately, no single overarching law governs international estate planning for other countries, including the United States.
A United States resident or citizen with foreign assets that are intended to be left to foreign beneficiaries may well wonder if he or she can avoid United States estate taxes. What law governs the will or intestate succession of an alien living in the United States? Can offshore accounts be used to avoid U.S. estate taxes? What if a U.S. citizen has relinquished his or her citizenship? Do states also impose estate taxes on international assets and citizens?
Estate planning can be complex and confusing, and it is even more so when international assets are involved. But ignoring these complexities may result in treasured family assets being excessively taxed or passing to undesired beneficiaries. A trusted professional attorney is the best way to address the many questions presented by estate planning when some of the assets are international.
International Estate Planning: Avoiding or Minimizing U.S. Estate Taxes with Strategy
Lifetime gifts within IRS limits to intended beneficiaries and irrevocable trusts for the beneficiaries are two strategies that help multinational families avoid estate taxes. These strategies work for transferring foreign assets into the United States as well as for U.S. assets.
Other strategies for transferring wealth internationally include an irrevocable life insurance trust (ILIT) created in the United States, creating an offshore private investment company, and creation of trusts in non-taxing jurisdictions.
All these strategies have advantages and drawbacks that are specific to the grantor, the beneficiaries, the type of asset, and the situs of the asset. Only with expert guidance can a multinational family navigate the treaties, rules, and forms governing such transfers.
International Estate Planning Services for U.S. Citizens with Foreign Assets or Beneficiaries in Other Countries
United States citizens are subject to estate tax in the United States as to all of their assets, wherever held in the world. However, using the unified credit exemption, each U.S. citizen is also allowed to gift a certain amount without having to pay estate, gift, or generation-skipping taxes.
A U.S. citizen or resident with worldwide assets exceeding the unified credit exemption amount in effect at the time of death must file Form 706, United States Estate (and Generation-Skipping) Tax Return, Estate of a citizen or resident of the United States. Although the U.S. estate tax rate remains at 40 percent, fortunately, the exclusion amount was up to $11,180,000 per person in 2018 (combined estate and gift tax exclusion).
Seventeen states also impose a state estate tax. These laws vary from state to state, are changing in response to federal estate tax changes, and require advice from an attorney versed in that state's law. West Virginia does not impose an estate tax or inheritance tax.
International Estate Planning Services for Non-Citizens with U.S. Assets
The estate of a resident or non-resident alien who owned assets in the United States, including real estate, vehicles, and securities in United States companies, may be required to file an estate tax return if the fair market value of the assets is $60,000 or more. The types of assets included may be changed by treaties between the U.S. and the alien's country, so estate planning lawyers must check for such treaties.
State estate taxes may also impact U.S. assets owned by a non-citizen, depending on the individual state's laws.
Reporting Requirements Regarding International Assets
Although the size of estates exempt from tax is growing, and the rate of tax has not recently grown, one area of regulation that is expanding in scope is financial reporting. U.S. residents (including non-citizens) who hold foreign financial accounts exceeding $10,000 in the aggregate are required to report the accounts annually, in the Report of Foreign Bank and Financial Accounts (FBAR).
This might not initially appear to be an estate planning matter. But if you have put any foreign accounts subject to this reporting requirement into a trust or granted authority over the same through a power of attorney or conservatorship, the duty to satisfy the FBAR reporting requirements would fall to the trustee, power of attorney agent, or conservator as the case may be.
Where to Turn for Help with International Estate Planning
Laws, countries, and families change from year to year. If you have international assets, don't assume that a strategy that was set up years ago is still advantageous to you or your beneficiaries, in the U.S. or abroad.
If you have assets in more than one country, you need special planning with an experienced and trusted international estate planning attorney. Anna M. Price, an attorney with the firm of Jenkins Fenstermaker PLLC in West Virginia, can help you with all of your estate planning needs. Contact attorney Price at the Huntington, West Virginia office at (304) 523-2100 or (866) 617-4736. Or, use her online contact form to schedule a consultation.