6 Ways To Protect Your Foreign Assets In Estate Planning
By: Christine Fletcher - March 17, 2019
As technology, innovation and air travel continue to bring us closer together, more and more people are describing themselves as “citizens of the world.” Along with this newfound global citizenship identity often comes ownership of assets in foreign countries.
Some of my clients have had barges on the Seine, olive groves in Turkey, homes in Mexico, and castles in Europe. Estate planning is more complicated when you have global assets and it is essential to know all the issues you should consider.
One of the most important considerations is how to structure ownership of the asset to maximize your estate and tax planning. This will depend on the laws of the country where the asset is located as well as your own citizenship. Have you thought about who will receive the asset when you die, and whether you will pay estate taxes on it?
Here are six things you need to know.
Proceed with caution. Make sure you have an experienced team of advisors in place. If your current attorney or accountant does not have the required expertise, bring someone on board who can assist them.
Look before you leap. Consult with your advisors before you purchase that hacienda or villa. They can advise you on the best way to structure ownership based on that country’s laws.
Obtain local counsel. Consulting with a local attorney in the country where the foreign asset is located is critical. You need to know how local law will impact your estate and tax planning. For instance, some countries do not recognize trusts which could have serious tax implications if you have a U.S. will transferring all your assets to a trust. Local counsel is also needed to represent you with the purchase and transfer of real estate.
Full disclosure is important. Make sure you disclose all your assets to your attorney. Some people fill out estate planning questionnaires and do not include their foreign assets because they think the assets do not have relevance in the United States. That is not true. Your estate planner needs to know what the assets are and where they are located to help you determine how they should pass on your death and what the estate tax implications are. Years ago, I had a client who did not tell me about his house in Italy until after he had signed his estate planning documents. He did not think the asset had any relevance to his U.S. estate plan.
One will or two? Depending on where the foreign assets are located, it may be best to have two wills, one disposing of the foreign property and a second disposing of your U.S. assets. It is important that your U.S. attorney and your foreign counsel coordinate on drafting the wills. You do not want one will to cancel out the other will. There is an added benefit to having two wills. Probate in each country will most likely be easier. Probating a will written in another language can be difficult and time consuming. A foreign will needs to be translated and understood by the legal authorities in that country. Having a separate will in each country usually makes probate easier.
Death and taxes. Many clients are surprised to find out that as U.S citizens they are taxed on their worldwide assets for estate tax purposes. Your attorney will be able to advise you on the estate tax implications of your foreign property and whether there are treaties in place with that country that will mitigate the estate taxes.
Whether you have inherited a foreign property or purchased it as your dream vacation home, make sure you speak with your advisors to overcome the legal and tax hurdles of ownership.
** Disclaimer Required by IRS Circular 230** Unless otherwise expressly approved in advance by the undersigned, any discussion of federal tax matters herein is not intended and cannot be used 1) to avoid penalties under the Federal tax laws, or 2) to promote, market or recommend to another party any transaction or tax-related matter addressed.