Incorporate Foreign Assets into Your Estate Plan

Possessing foreign assets necessitates careful consideration in your estate planning to avoid unexpected outcomes. With the guidance of an experienced estate planning advisor, you can structure your foreign assets in compliance with both U.S. laws and those of the countries where your assets are located. Here are some crucial issues to address if your foreign assets are not properly incorporated into your estate plan.

Beware of Double Taxation

As a U.S. citizen, you're subject to federal gift and estate taxes on all your worldwide assets, regardless of where you reside or where the assets are located. This means your foreign assets could face double taxation if they are also subject to estate, inheritance, or other death taxes in the countries where they are located.

Although you may qualify for a foreign death tax credit against your U.S. gift or estate tax liability—particularly in countries with tax treaties with the U.S.—such credits are not always available.

You’re considered a U.S. citizen if:

1. You were born in the U.S., regardless of your parents' citizenship or your current residency, unless you've renounced your citizenship.

2. You were born outside the U.S., but at least one parent was a U.S. citizen at the time of your birth.

Even if you’re not a U.S. citizen, you might still be subject to U.S. gift and estate taxes on your worldwide assets if you're domiciled in the U.S. Domicile refers to residing in a place with an intent to stay indefinitely and to always return when you’re away. Once the U.S. is considered your domicile, its gift and estate taxes apply to your worldwide assets, even if you leave the country, unless you change your domicile.

With the federal gift and estate tax exemption set at $13.61 million for 2024, U.S. gift and estate taxes might not seem concerning. However, the exemption is scheduled to revert to its pre-2018 level of $5 million (indexed for inflation) at the beginning of 2026 unless Congress extends it.

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

Coordinate Two Wills

To ensure your foreign assets are distributed according to your wishes, your will must be drafted and executed to be valid in both the U.S. and the countries where your assets are located. While a single will may suffice for all jurisdictions, it is often beneficial to have separate wills for foreign assets. A separate will, especially if written in the foreign country's language, can streamline the probate process.

If you opt for two or more wills, working with local counsel in each foreign jurisdiction is crucial to ensure each will meets the respective country's requirements. Coordinating with your U.S. and foreign advisors is essential to prevent one will from nullifying the other.

Planning for Foreign Assets

Owning foreign assets requires meticulous planning to ensure they are distributed according to your wishes in the most tax-efficient manner possible. We can help you navigate these complexities and develop an estate plan that accounts for all your assets, both domestic and international.