Our increasingly mobile society has forced estate planning to go international, too. You might have international estate issues if any of the following apply:
▪ You have dual citizenship (US and another country)
▪ You are a non-U.S. citizen residing in the U.S.
▪ Your spouse is a non-U.S. citizen
▪ You have beneficiaries residing outside the U.S. (whether US citizens or not)
▪ You have inherited something or received a gift from a non-U.S. citizen
▪ You own property located outside the U.S.
▪ You are a non-citizen, non-US resident but own property in the U.S.
Three situations that we frequently see include U.S. citizens with non-citizen spouses, non-U.S. citizens residing in the U.S., and U.S. citizens/residents with foreign connections (property or people).
Non-Citizen Spouse: For Federal estate and gift tax purposes, the unlimited marital deduction does not apply when the recipient spouse is a non-citizen. Frequently, gifts to benefit a non-citizen spouse must be made a qualified domestic trust to avoid a large tax being imposed (the tax is postponed until the death of the surviving spouse). Also, non-citizen spouses often have property or beneficiaries outside the U.S., which complicates many other issues.
Non-Citizen Residents: Non-citizen residents are subject to the same estate and gift taxes as citizens. A person can also be a U.S. resident for such transfer tax purposes even though he/she is not a resident for income tax purposes. For transfer tax purposes, a person acquires a U.S. domicile by living in the U.S. (no length of time is required) with no definite present intent to move out of the U.S. at a later time. Therefore, the estate of a non-U.S. citizen residing in the U.S. will be taxed on worldwide assets, the same as that of a U.S. citizen, but will also have the benefit of the same exemptions.
Foreign Connections: A U.S. citizen or resident who has relatives living outside the U.S. or who owns real or tangible property outside the U.S. must carefully evaluate the tax implications. A gift or bequest to a relative living outside the U.S., even one who is a U.S. citizen, might result in taxation both in the U.S. and in the other country, causing the transfer to be taxed by both the U.S. and the other country, although a tax treaty might alleviate some of the double taxation. Generally, treaties allow each country to tax the assets within its own borders and often allow for increased exemptions from applicable taxes, although the tax paid to the other country is frequently only a deduction against the tax owed to the U.S. There are also reporting requirements when a U.S. citizen or resident receives certain gifts or bequests from non-U.S. citizens or a distribution from a foreign trust.
If any of these situations apply to you or a family member, your estate plan should address these issues to avoid unpleasant and costly mistakes.