5 Estate Planning Tips For Cross-Border Families

A Complete Guide To International Estate Planning

1. Consider Using Multiple Wills Or An International Will

In the United States, modern estate planning often centers around the use of a Revocable Living Trust (“RLT”), but in many other jurisdictions the use of an American RLT can create headaches that your loved ones would rather avoid. Accordingly, sometimes international estate planning centers around a will or multiple wills rather than an RLT.

In situations involving assets in multiple countries, it is worth considering using multiple wills in a coordinated estate plan that ensures family assets are administered appropriately. Many of our clients have a U.S. will to govern their U.S. assets and a foreign will to govern their assets in another country. These country-specific wills are referred to as “situs wills” because they only apply to assets within a specific legal jurisdiction or “situs.”

If you use multiple situs wills, the drafting attorney(s) should be aware of the other will(s) and should draft them carefully to avoid contradictions. For example, most wills include a revocation clause that expressly revokes all prior wills. This clause will need to be narrowly-tailored to ensure it doesn’t mistakenly revoke a situs will that you need to remain in force. Be sure that your wills are not too narrowly tailored for your overall estate planning needs. For example, narrowly-tailored situs wills in the U.S. and U.K. that each only govern assets in those countries would lack the authority to govern miscellaneous assets that might be spread out in other countries.

Many countries recognize wills that are drafted and executed in a foreign jurisdiction and there is a growing movement internationally to establish cross-jurisdictional standards for a valid will. Accordingly, some cross-border families may choose to rely on an “international will” that governs a person’s worldwide assets. In these instances, it is important to make sure the international will complies with all relevant laws and will be recognized and accepted under each country’s own set of legal standards.

2. Develop a Coordinated Gifting Strategy

Gift-giving strategies are always an important part of an estate plan. For cross-border families the time and place for gift giving is especially important. Consider U.S. gift and estate taxes, for example. Foreign nationals not domiciled in the United States are only subject to estate and gift taxes on their U.S. assets. Non-U.S. citizens who have assets both inside the United States and in other jurisdictions, therefore, can plan their gifting strategy to minimize or eliminate U.S. transfer taxes. Families who may be considering relocating to the United States can engage in pre-immigration estate planning which often includes making gifts before moving to the United States. They can ensure that those gifts are completed outside the United States, and before the gift maker is considered a U.S. domiciliary.

In contrast, foreign nationals who are domiciled in the United States are already subject to U.S. estate and gift taxes. Under current U.S. tax laws, these individuals can qualify for the $11.7 estate and gift tax exemption and may want to avoid lifetime gifts and maintain assets in their estate until their death—thereby qualifying for certain income tax benefits (such as the cost basis adjustment available under Internal Revenue Code 1014—commonly referred to as the “stepped up basis”).

Of course, these types of tax planning techniques should be balanced against the planning options available in the other relevant countries as well. Any international gifting strategy should be coordinated between the relevant jurisdictions with advice from qualified advisors.

3. Consider Using a Professional Trustee

As highlighted in Section 1 above, cross-border families need to think carefully about including a revocable living trust as a part of their estate plan. Whether using an RLT or any other type of trust, the appointment of a trustee becomes an important choice. This is the person that will be responsible for managing the trust assets, complying with taxes and financial regulations, and distributing assets to beneficiaries. For trusts that hold assets or serve beneficiaries from multiple jurisdictions or, this may include dealing with tax authorities from each of these jurisdictions or navigating legal hurdles in court or with regulatory agencies. For these reasons, we often recommend the appointment of a professional trustee who has the experiences and professional resources to manage these responsibilities. Regardless of who you choose as trustee, it is critical to ensure that any present or future trustee is aware of the potential legal issues involved in administering the trust and has the resources to address them.

In some cases, hiring a professional trustee can eliminate certain complications altogether. For example, the IRS imposes greater reporting requirements on foreign trusts than domestic trusts. One key factor in determining whether a trust is categorized as a foreign trust or a domestic trust is whether the trust is controlled by a non-U.S. person. Appointing a professional U.S. trustee (as opposed to a family member who may not be subject to U.S. jurisdiction) is a relatively easy way to avoid having your trust unnecessarily classified as a foreign trust.

4. Consider The Estate Planning & Tax Consequences Of Immigration

Members of cross-border families often have multiple options in deciding where to live. It is becoming more and more common to relocate multiple times due to career changes, shifts in family circumstances, etc. In the United States, for example, U.S. citizens can sponsor certain family members to obtain permanent residency in the United States—which creates a pathway to U.S. citizenship for those who are interested in naturalization. Relocating your family to a new country involves a lot of legal issues and it should come as no surprise that your immigration status can have a dramatic impact on your estate planning needs.

Let’s consider U.S. tax laws again. Both income, gift, and estate tax status can vary depending on one’s domicile, residency, or citizenship status.

Individuals who are domiciled in the United States (regardless of whether they are U.S. citizens or permanent residents) are subject to U.S. estate taxation on their worldwide assets. Determining whether someone is domiciled in the United States is not always a simple question and the United States has treaties with many countries to help resolve this question and to determine which country should have priority for taxing an individual’s estate.

Additionally, U.S. citizens are eligible for an unlimited marital deduction allowing them to inherit an unlimited amount of money from a spouse without penalty or tax. Non-citizens, however, are only entitled to a marital deduction of $60,000 unless they engage in more advanced planning such as the use of a Qualified Domestic Trust (“QDOT”).

While our estate tax laws require an analysis of a person’s domicile and citizenship, U.S. income tax laws apply a different standard. For income tax purposes, non-U.S. persons are classified as Non-Resident Aliens or Resident Aliens. Resident Aliens, which includes both Legal Permanent Residents (“LPRs” also known as “green card holders”) and non-permanent residents who spend a sufficient number of days in the United States in any given year, are subject to U.S. income taxes on their worldwide income.

If that wasn’t complicated enough, the U.S. tax code also imposes expatriation taxes and penalties on individuals who give up U.S. citizenship or residency in order to avoid taxes.

Outside of tax issues, a person’s citizenship, domicile, or residency can impact which country (or state) has jurisdiction over other aspects of the inheritance process, such as: which court should oversee the process; and whose laws should apply for determining legal heirs.

Ultimately, cross-border families should think carefully about the estate planning consequences of the immigration decisions.

5. Assemble a Team Of Experts

The issues outlined above help to demonstrate a few of the issues that cross-border families face in estate planning. To adequately plan for and address these issues, it is critical to work with a team of experts who can both give advice and coordinate with others to ensure the overall plan is designed and administered properly. The team should include legal counsel who are familiar with the laws of each applicable jurisdiction. It should also include accounting and tax advisors who are familiar with the applicable tax rules, withholding requirements, and reporting standards. In our globalized world, it is becoming increasingly common for professionals to work collaboratively across disciplines but it is important to find those professionals that you can trust and in whom you can place your confidence.

At the Gunderson Law Group, P.C., we work hard to stay informed on the international estate planning and immigration issues that our clients face, but we know it is important to work alongside our clients and their trusted advisors to complement the important work we do. If we can help you with your estate planning or immigration legal needs, please contact us today.

Approved and published by Adam Gunderson