Increasingly, people in the United States say they are looking to relocate permanently to another country, and even more people are interested in buying real estate outside the United States and living there at least part-time.
The practical implications of leaving the United States, including taxation and estate planning issues, cannot be ignored. Escaping Uncle Sam is not as easy as hopping on a plane to a far-flung location. One of only two countries, the United States imposes citizenship-based taxation meaning that where a U.S. citizen is - they may owe taxes to the United States.
Moreover, expatriates who live and own assets (accounts and property) in more than one country need to have a legally authorized representative to make financial decisions for them when they are not physically present in a particular country. This requires working with attorneys in each country where they have assets.
Living Abroad Can Mean Double Taxation
Just as double taxation means that expatiates living abroad could end up paying income tax twice on the same income—once to their home country and again to the United States, double taxation may apply to estate taxes as well. Foreign assets are subject to U.S. estate taxes, so any property, whether domestic or foreign, an American citizen owns could be subject to this tax . These same foreign assets held in another country might additionally be taxed under that country’s wealth transfer rules.
Other than renouncing U.S. citizenship, which is expensive, U.S. expatriates, along with any other taxpayer who owes a return (i.e., many non U.S. persons may be required to file income and estate tax returns), can take advantage of the foreign death tax credit. This credit is available to any taxpayer, including U.S. expats living outside the United States, to claim a credit on estate, inheritance, legacy, or inheritance tax paid to a foreign government.
US Taxpayers and International Wills
An estate plan limited to U.S. laws may be insufficient for anybody holding property outside the United States. Whether living outside the United States or residing in the United States and owning property abroad, a good estate plan will include either a will specific to the foreign property or sometimes if authorized an international will.
Specific Wills - International Convention Not Enough
Notwithstanding the availability of international law, a will specific to the foreign country ("situs will") will likely make administration more flexible. Requiring a personal representative (executor) appointed by a U.S. state court to participate in another country's proceeding or even mange property outside the United States may prove burdensome, particularly if that person does not speak the language of that country. Thus, a good estate plan may have multiple wills. The primary instrument could be a will (or preferably a trust) created under U.S. state law to cover the U.S. assets while a second will, the situs will, would govern the property in the additional country.
Incapacity and Absence Planning
Incapacity planning or authorizing others to act in your absence will certainly require planning specific to the host country.
Does Your Estate Plan Match Where You are Living?
Whether you are living outside the United States, have plans to relocate to another country, or just want to invest in property outside the United States, you will have to adapt to a new culture and new laws, including laws that affect taxation and estate planning. Your current estate plan may be inadequate to deal with legal questions raised by these decision, leaving you at risk of losing control of your health and your assets.
Careful estate planning can help address the challenges of calling more than one country home. Due to differences in laws, it may be necessary to work with experienced attorneys in each country.
We are available to assist you to make sure your estate plan reflects your decisions to living abroad or purchasing property outside the United States, and we can help you identify foreign counsel to make sure your estate plan is complete for your life and property outside the United States.