In today’s transient world, more and more people live and own property in multiple countries. If that describes you, you may run into some very complex tax and estate planning situations. This guide is meant to help you identify and address some of the main estate planning issues you may face.
#1 Coordinate Estate Planning Documents Between Countries
One of the biggest problems with international estate planning is that each jurisdiction has different rules for how assets are passed on to the next generation. Different documents and/or provisions are usually needed for each country where assets are located in order to comply with those rules. Don’t make the mistake of simply creating a will and/or trust in each individual jurisdiction where assets are held. The language of most wills or trusts revokes all prior estate planning documents, so if you create separate wills in Australia, Mexico, and the United States, for example, only the last of the three may apply unless you have carefully coordinated plans between countries. If you need to create estate planning documents in a new country, be sure the documents don’t cancel out what you already have set up. It is important to work with counsel in each jurisdiction or country where you hold assets in order to put together a comprehensive, coordinated plan.
#2 Consider an International Will
One solution to international estate planning might be an international will. Most countries are part of a treaty that recognizes these types of wills. If you have assets in more than one country, you should speak with an attorney who is familiar with international wills, but who can also discuss the pros and cons of using this tool versus coordinating documents between different countries. For example, an international will might be recognized in the United States, but an individual with assets in the US might enjoy better tax and other benefits by creating one or more trusts instead of or in addition to an international will. Regardless of the tools you use, it is important to seek advice from a qualified attorney licensed in each country where assets are held.
#3 Know How to Navigate Estate and Tax Laws in Each Country or Jurisdiction
Taxation is perhaps the most difficult and complicated issue in international estate planning. Each country has its own set of transfer tax, income tax, and capital gains tax rules. For example, Canada has no gift or estate tax, but it does not offer a step up in basis for the heirs of an estate. That means that any gift or asset transfer is subject to capital gains tax. Unlike Canada, the United States has both a gift and estate tax, but it allows a step up in basis for assets received via inheritance. Someone with cash in Canada could give $10MM to their parent in the US tax-free. That parent could use that $10MM to invest in a business or property, then leave that asset to their child in Canada in their will or trust. If the asset is worth $20MM at the parent’s death, the child in Canada would receive a step up in basis and would pay no capital gains at the sale of the asset. If the countries were switched in this scenario, taxes would be paid both at the time of the gift and again at the death of the parents. Tax planning is a vital part of the estate planning process.
Consider also the different exemption amounts in the US for citizens and “residents” (different from the immigration law definition) versus non-residents. US citizens enjoy a $5.49MM (2017) estate tax exemption. For non-residents, the exemption is only $60k. Knowing the laws and planning properly can make a huge difference for international individuals. It is important to work with an attorney and/or CPA that has international tax expertise in addition to familiarity with international estate planning rules.
By: Jacob A Stewart, JD
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