Estate Planning for the Modern Global Family
Posted on May 9, 2024 by Teresa Tallarita
Estate planning tends to be a topic that overwhelms most people. It can be further complicated for modern-day global families whose lives include international nuances. For example, when one spouse is not a U.S. citizen, certain legal considerations come into play that can impact your planning strategies. Further, more and more families have international beneficiaries or own properties and assets in multiple countries, which requires careful planning and attention to the laws and tax regulations of each jurisdiction.
Planning for Non-U.S. Citizen Spouses
When planning for a non-citizen spouse, the basic steps of creating wills or living trusts, naming beneficiaries for retirement accounts, and establishing powers of attorney for finances and healthcare decisions remain the same.
However, when it comes to federal estate and gift taxes, there are a few nuances to consider. The current federal exemption allows transfer of an estate up to $13.61 million tax-free ($27.22 million for married couples). The unlimited marital deduction, which allows assets to be passed on without federal tax to a surviving spouse, only applies if that spouse is a U.S. citizen. By contrast, the amount that can be gifted in 2024 tax-free to a non-U.S. citizen spouse is only $185,000.
Some of this disparity can be obviated by advanced planning. Couples that find themselves in this situation can establish a Qualified Domestic Trust (QDOT), where the assets are placed into a trust for the noncitizen spouse’s benefit. The non-citizen spouse will then receive income generated by the trust without immediate estate tax implications. However, in order to be valid, a QDOT must meet specific legal requirements pursuant to the Internal Revenue Code, and the trustee must be a U.S. citizen or corporation. A similar Washington state QDOT provision is available for smaller estates that don’t meet the federal threshold.
Planning for International Assets and Bequests
Estate planning laws vary significantly from one country to the next. Because of this, it is critical to understand the legal intricacies of not only your home country, and your country of residence, but also the residence of your beneficiaries. Some countries have “forced heirship” laws that dictate how assets are to be distributed upon death, often prioritizing family members over an individual’s testamentary wishes. Other countries have inheritance taxes under which the beneficiary of a U.S. citizen’s assets might incur significant unintended taxes if they receive property in that country. Further, unless there is an applicable tax treaty expatriates may be subject to estate taxes in both their home country and their country of residence, leading to potential double taxation issues. These laws can have a substantial impact on the intended transfer of wealth.
Cross-border families need to think carefully when choosing a team of professionals, agents and fiduciaries to coordinate international estate planning and navigate complex legal and financial matters across jurisdictions. Your team will typically include estate planning attorneys with who can collaborate to draft compliant wills and trusts as well as accounting, and tax advisors familiar with relevant laws and regulations in each country to ensure a comprehensive and well-coordinated estate plan tailored to your specific needs. Further, any trust that is controlled by a non-U.S. person will be designated as a foreign trust and subject to different and more stringent IRS reporting requirements. Appointing a U.S. professional trustee instead of a family member who may not be subject to U.S. jurisdiction is a relatively easy way to avoid having your trust unnecessarily classified as a foreign trust. It is also critical to update your plan with your team in the event you move to a new jurisdiction or add additional international assets to your estate, and to regularly check for updates in any applicable laws in each jurisdiction.
Families with assets across borders may opt for an “international will,” or a will designed in compliance with the International Wills Act, to be enforceable in any jurisdiction that has adopted the Act. An international will should ensure its compliance with relevant laws in each jurisdiction. In some cases, coordinated estate planning might involve separate wills for different countries, known as “situs wills.” Revocation clauses in wills should carefully tailored to avoid inadvertently revoking complimentary situs wills.
Conclusion
International estate planning for cross-border families requires careful consideration of legal, financial, and practical factors. By understanding the laws of multiple jurisdictions, engaging qualified professionals, and addressing some of these key considerations, families can ensure that their assets are protected and their loved ones are provided for according to their wishes. Proactive planning today can provide peace of mind and security for tomorrow, regardless of where in the world life’s journey takes you.
For assistance with this, and other estate planning concerns, please contact any of the attorneys at Lasher’s Estate Planning, Trusts & Probate practice group.
