Many people in the Washington, D.C. Metro area are members of "International families" and have family and friends who do not live in the United States or who are citizens of other countries. International estate planning is important for you:
- You may wish to gift your assets in the U.S. or overseas to these non-resident, non-citizens of the U.S.
- They may wish to make gifts to you, or leave you an inheritance, or you may have a significant estate.
The U.S. Federal Government, along with individual states, creates rules and regulations on estate taxation, inheritance taxation, and gift disclosure. These rules can vary, depending on whether you and your spouse are citizens or residents of the U.S, the size of your estate, the value of gifts you have bequeathed during your lifetime, where you are "domiciled" at the time of your death, the nature and location of your assets, and whether an international income or estate tax treaty applies.
Similarly, other countries may have their own rules and regulations about gifts, estates, inheritances, and the nature and location of assets over which they may have taxing rights. Most often, these rules and regulations are neither uniform nor consistent with the U.S. rules.
A lack of awareness and failure to plan properly, and not following the rules in each jurisdiction, can lead to adverse tax consequences, delays in distributing assets to beneficiaries, and even losing potential benefits for you or your future beneficiaries.
Do I Have to Worry About Foreign Estate Tax or Other Related Estate Obligations While Living in the U.S.?
Yes! You absolutely must consider and address foreign estate obligations. Unlike some courts around the world, anyone can come before American courts and seek relief -- subject to certain rules and conditions. While controversy swirls around the enforcement of international claims in U.S. courts, they still occur. Estate planning is a comprehensive process that should provide certainty in the event of death or other unexpected events. Establishing certainty when dealing with foreign countries is essential to creating a comprehensive estate plan.
Each Country Has Different Rules and Potential Treaty Relationships
Whether you are part of an estate plan that impacts a different jurisdiction or aspects of your estate plan could be recognized in a foreign country, you need to consider the full ramifications of giving or receiving a gift. Several necessary estate planning inquiries when dealing with international estate planning, which features answers in each jurisdiction like:
- Is there an inheritance tax that applies to the estate?
- Are death or estate benefits treated as income?
- Are any taxes or fees collected by the foreign country's national government, regional government, or both?
- What are the legal processes and potential financial implications regarding transferring real or personal property?
- To what extent are you or a potential beneficiary subject to the foreign country's jurisdiction and under what designation (i.e., residency and domicile classifications)?
- Do you or your beneficiary qualify for any entitlements or exemptions?
Finally, and most critically, you need to assess whether this foreign country has a treaty with the U.S. that addresses estate planning issues and that can provide a certain amount of uniformity as to the issues referenced above.
The U.S. has estate and gift tax treaties with a few foreign countries (some European countries, Canada, Australia, Japan, and South Africa). However, the U.S. does not have treaties with most countries in Eastern Europe, the Middle East, Africa, and Latin America. Further, some countries may have different legal systems, and inheritance may be governed by religious laws.
Addressing these questions is often a complex task and requires trusted legal expertise, along with collaboration with international counsel -- what works well in the U.S. may not work as well in a foreign country, and vice versa.