As the world gets smaller, it is increasingly common for people to own assets in a variety of places, both within the United States and internationally. Whether your property is a generations-old family tract in an ancestral homeland, or a new vacation home in a tropical setting, owning assets outside the United States raises a number of estate planning questions.
Who gets your property when you pass away? What taxes are due? And how should your estate plan in the U.S. be tailored to ensure that all your property – here and abroad – is transferred as efficiently and effectively as possible?
Making the right decisions requires knowledge and understanding of estate planning-related laws: state law, United States federal law, and the laws in effect where the overseas property is located.
At the core level, state law determines the default rules for what happens to the bulk of your property – everything that is located in the state where you reside – when you pass away. Layered on top of this is federal law. For example, it lays the groundwork for the taxes you pay as a U.S. citizen or resident, stating that a citizen or resident is taxed on all assets he or she owns anywhere in the world, even outside the United States.
When you only own property in the United States, an estate planning attorney can use his or her knowledge of state and federal law to establish trusts and other estate planning tools, making the most of the law to benefit you and your loved ones. For instance, a Revocable Living Trust is a common estate planning tool for those who only own property in the United States, because transferring property into a living trust avoids probate and has no adverse income tax consequences. However, the same may not be true if non-U.S. assets are transferred into the trust.
When you own assets located overseas, another layer of knowledge comes into play: knowledge of the laws in effect where that property is located. Those laws can have an immense impact on your estate plan.
For example, transferring Canadian property into your Revocable Living Trust might result in an unnecessarily high tax bill. If you’re aware of this, you might opt for another planning strategy and avoid the unnecessary expense.
Or, inheritance laws in the other country might override your will or trust and dictate that certain family members inherit a share of the overseas property. Awareness of where you and your property stand in relation to local and national laws can have an enormous impact on how you choose to structure your estate plan, not to mention how you and your family prepare for the settlement of your estate.
To ensure that your estate plan incorporates the best tools and techniques for all your property, wherever it may be located, you’ll want to work with an experienced estate planning attorney. He or she can work with a specialist in the country where your overseas assets are located to construct a plan that takes into consideration the unique interaction between both nations’ laws. Together, they can help you make sure you avoid any tax traps, understand the ins and outs of applicable inheritance laws, and reach your goals as efficiently as possible.
By: The American Academy of Estate Planning Attorneys