When most people get in touch with an estate planning attorney, they seem confused about the varying laws of different American states. Estate planning for properties in two different states is difficult enough, but when a whole other country is involved, you can’t go without some intensive study into estate law. If you don’t understand it correctly and apply it efficiently to your own circumstance, there’s no saying how the transfer of estate, probate, tax and civil law is going to affect you and your family.
For those who own estate in the motherland but choose to live and work aboard, the American law has no sympathies. They are leveled with heavy taxes when processed or transferred abroad. If you have immigrated to another country and are now living as an expat, you will need to read this article before getting into estate planning.
Let us break it down for you.
What is a Cross-Border Family?
Simply put, a cross-border family involves families in which there are members of mixed nationalities. It could also refer to a family who has financial stakes and affairs that extend beyond the American border. This can include expat Americans, residents of the US of foreign origin, and non-US-residing investors. It is common for these families to have assets in various countries and to be subjected to estate laws in more than one jurisdiction.
If you are a member of a cross-border family, you will have to do your estate planning carefully after ample research. We can acquaint you with some basics.
Tailoring a Cross Border Estate Plan
Dividing or transferring assets in a cross-border family is not possible without a perfectly tailored estate plan. This is something you shouldn’t attempt to do without an estate planning attorney at hand. Choose one who is willing to listen to your wishes patiently and advise you to the best of their ability. There are myriad factors that go into international estate planning, and you will do better to understand all of them before setting your assets up in any kind of trust.
Estate Planning Complications
Some cross-border issues can lead to complications in estate planning.
If you have decided to leave American borders to work and live abroad, know that the U.S. Treasury has absolutely no qualms about taxing you half your property. No matter where an expat American is located, the U.S. transfer tax is going to apply. You will receive an income tax relief as your foreign earned money is part of the exclusion list. However, an expat can expect to lose plenty in exchange for this.
When you die, the Treasury applies estate tax on your assets worldwide—this includes retirement assets, proceeds from life insurance, and all personal property including real estate and assets.
However, the exemption amount in the last year has increased to about $11.4 million for a single person. This means that Americans living here or abroad have little concern for these federal estate taxes. Keep in mind that these rates are at a volatile position and can be largely different in the coming years.
The international scene consists of more than two hundred nations with vastly different laws existing as microcosms in the larger scheme of things. Moving abroad, especially to a whole new part of the world, means complicating matters of the law for yourself. While almost all American states have common law foundations, Europe, Africa, and Latin America follow the civil law.
Common law is empowering for the average American as it offers more discretion and flexibility owing to particulars of a person’s case. In contrast, civil law is stricter and prone to forced heirship laws.
Residency and Citizenship
If you want to correctly determine what tax regime you would be following at the time of estate planning, it would first have to be determined where you ‘reside.’ It doesn’t matter whether you consider the United States home or not; the law has its own ways of determining how to tax you.
In the UK for instance, there are three possible residency statuses that impose different rules on citizens based on how long they stayed in the country. In the United States, the objective way to decide whether you are a resident or not is to count the number of days you physically spent in the country. If there was a ‘substantial presence’ in the States for much of the tax-paying year, you are considered a US resident.
Tangible and Intangible Property
Property that is physically located within the US is called ‘US situs.’ This means that as long as tangible property is on American land, it is going to be taxed according to federal laws of the United States. The rules for intangible property, however, are a little less defined. Personal property that is physically located in the States is US situs and will be taxed accordingly, including cash of all sorts.
Intangible assets, such as investment funds, stocks, retirement plans, bonds, and life insurance policies, have different rules depending on who issued them or when they were purchased.
International estate planning is complicated and you may get lost on the way. The best solution is to get in touch with an estate planning attorney who can properly gauge your particular situation in the global landscape. Good luck!