Foreign Assets in Your Estate Plan: Key Considerations

Owning foreign assets requires careful planning within your estate to avoid unexpected complications. With the assistance of an experienced estate planning advisor, you can structure the ownership of your foreign assets in compliance with both U.S. laws and those of the country where the assets are located. Here are some critical issues to consider if your foreign assets are not properly addressed in your estate plan.

Double Taxation Risks

As a U.S. citizen, all your worldwide assets are subject to federal gift and estate taxes, regardless of your residency or the location of the assets. This includes the risk of double taxation if your foreign assets are also subject to estate, inheritance, or other death taxes in their respective countries.

You might be eligible for a foreign death tax credit against your U.S. gift or estate tax liability, especially in countries with tax treaties with the U.S. However, these credits are not always available.

U.S. Citizenship and Tax Implications

You are considered a U.S. citizen for tax purposes if:

• You were born in the U.S., regardless of your parents’ citizenship status or your current residence, unless you have renounced your citizenship.
• You were born outside the U.S., but at least one of your parents was a U.S. citizen at the time of your birth.

Non-U.S. citizens domiciled in the U.S. may also be subject to U.S. gift and estate taxes on their worldwide assets. Domicile is defined as residing in a place with the intent to stay indefinitely and return when away. Once you establish domicile in the U.S., these taxes apply to your foreign assets unless you change your domicile.

With the federal gift and estate tax exemption set at $13.61 million for 2024, you might not worry about U.S. gift and estate taxes immediately. However, this exemption is scheduled to revert to the pre-2018 level of $5 million (adjusted for inflation) in 2026 unless Congress extends it.

Even if your estate is currently under the exemption amount, planning for a potential estate tax bill is prudent. Additionally, for married couples, the rules become more complex if one spouse is neither a U.S. citizen nor considered a resident for estate tax purposes.

Coordinating Multiple Wills

To ensure your foreign assets are distributed according to your wishes, your will must be valid in both the U.S. and the country where your assets are located. While it is sometimes possible to draft a single will that meets the requirements of multiple jurisdictions, it might be more efficient to prepare separate wills for your foreign assets. A will written in the foreign country’s language may streamline the probate process.

If you opt for multiple wills, it’s crucial to work with legal counsel in each foreign jurisdiction to ensure the wills comply with local laws. Coordination between your U.S. and foreign advisors is essential to prevent any conflicts or nullifications between the wills.

Professional Guidance

If you own foreign assets, we can assist in ensuring they are distributed according to your wishes and in the most tax-efficient manner possible. Reach out to us for expert advice tailored to your specific situation.