If you own foreign assets but haven’t included them in your estate plan, it’s time to revisit your plan. It’s possible to structure the ownership of your foreign assets according to the laws of the U.S. and the country where they’re located. But you probably should engage the help of an experienced estate planning advisor so you avoid these common issues.
The Burden of Double Taxation
U.S. citizens are subject to federal gift and estate taxes on all worldwide assets, regardless of where they live or the location of the assets. This means that If you own assets in other countries, you run the risk of double taxation if the assets are also subject to inheritance, estate, and other death taxes in those countries.
A foreign death tax credit can help offset the US gift or estate tax; however, those aren’t necessarily available in all situations. It’s possible that you might be able to get a foreign death tax credit which can lower your US estate and gift tax. But that is often dependent on tax treaties the other country has with the United States, and in some cases those credits aren’t available.
You are a U.S. citizen if:
- You were born in the U.S., whether or not your parents were ever U.S. citizens and regardless of where you currently reside, unless you’ve renounced your citizenship, or
- You were born outside the U.S. but at least one of your parents was a U.S. citizen at the time.
Even if you’re not a U.S. citizen, living inside the U.S. can make your worldwide assets subject to US gifts and estate taxes. This depends on the concept of “domicile”, meaning you have made the U.S. your home and plan to return there when you leave. When the U.S. is your domicile, their gift and estate taxes apply to your assets outside that country, even if you leave the country. Unless you take action to change your domicile, these taxes apply.
This may not be cause for concern. The U.S. gift and estate tax exemption amount is $13.61 million for the 2024 tax year. But remember, the exemption amount is scheduled to revert to its pre-2018 level of $5 million (indexed for inflation) as of 2026 unless an act of Congress extends it.
Regardless, it’s best to plan for potential estate tax in the future. Additionally, married couples have different and potentially more complex rules. This is specifically true if one spouse is not a U.S. citizen nor considered a resident for estate tax purposes.
Plan to make two wills
If you want your foreign assets distributed exactly as you’d prefer, your will must be valid in both the U.S. and the other countries where assets are located. While it can be possible to prepare a single will that meets the requirements of each jurisdiction, it is still preferable to have separate wills for your foreign assets. If you opt to have a separate will, written in the foreign country’s language (if not English), it can help smooth the probate process.
Should you opt to prepare two or more wills, you should definitely work with local counsel in each foreign jurisdiction so you can be certain your wills meet each country’s requirements. If possible, it’s preferred that your U.S. and foreign advisors are able to coordinate to avoid any nullifying conflicts between the two wills.
The bottom line is that if you own foreign assets, the wisest decision is to work with a Smolin advisor to ensure your wishes are executed in the most tax-efficient way possible. Reach out to a Smolin Advisor for support in all your estate planning needs.