Estate planning is complex when dealing with family members living outside the United States. An individual cannot leave their financial affairs until the last minute, as the tax codes and estate planning laws vary across the globe.
Ignoring key planning considerations could leave your estate open to high tax payments, drawn-out court proceedings or wrongful inheritances.
Creating a trust
As an alternative to a will, creating a trust allows a designated trustee to manage and oversee the division and distribution of your assets to the beneficiaries designated before your death. If you choose to designate a family member who is not a U.S. citizen, you could face a complication from an improper designation of the trust as a foreign trust. This could leave it susceptible to higher tax liabilities than a standard U.S. trust.
Dealing with common challenges
When an heir is not a United States citizen, there are several things that could interfere with receiving their inheritance. This first is the point of taxation, as there are significant differences between civil and common law systems. The heir could face double taxes on what they receive. Residency status also matters in cross-border estate plans, since it determines which kind of tax treaty or foreign tax credit the U.S. with the country. These impact the amount of money the beneficiary can receive or impact how difficult it is to claim their inheritance.
Make sure you include all of the essential information when creating your trust, especially if you have foreign beneficiaries. This includes the full names, residency status and addresses of the beneficiaries, their spouses and dependents.