In our globalized society, having family members who live in other countries is becoming increasingly common. This can provide great opportunities to visit new areas and experience foreign cultures. However, it can also make some aspects of life more challenging—including estate planning.
You may associate estate planning with something you don’t do until you’re elderly and have accumulated a lot of wealth. However, you shouldn’t put off estate planning, especially if your heirs live in different countries.
The importance of estate planning for cross-border families
The reason estate planning is so important for cross-border families is that different countries have different laws when it comes to estates and inheritances.
As a result, your estate plan needs to take these different laws into account if you want to maximize your control over your estate and limit how much it gets taxed. Whenever you’re dealing with multiple countries, there tend to be additional legal challenges and tax implications.
By tackling estate planning early and with the right professional help, you can prepare the way for a smooth inheritance process after you die. So here are six tips on international estate planning for you to follow:
- Understand nationality, residency, domicile, and situs rules
Some of the first things you must get a handle on when creating an international estate plan are different nationality, residency, domicile, and situs rules. These rules dictate which jurisdictions get control over how your estate is handled.
Here’s a brief description of each:
- Nationality laws apply to citizens of a country, no matter where they happen to live.
- Residency laws apply to all those living in a particular country, regardless of nationality.
- Domicile laws apply to those whose permanent home is in the country, even if they currently live elsewhere.
- Situs laws apply to property that belongs to a particular legal jurisdiction, such as real estate or shares in company, regardless of where the owner lives.
All of these laws will have an impact on how your estate is handled, so it’s important to research them for each country in which you have property and heirs.
- Consider gift tax laws and tax treaties
Gift tax laws go hand in hand with estate planning. This is because one way to transfer ownership of your assets to heirs and avoid taxes is to give it away. However, you shouldn’t plan on giving away all of your estate because most countries limit how much you can give away.
For example, in the U.S., you can give away $17,000 per donee in 2023 without it being subject to a gift tax. Anything beyond that counts toward a lifetime gift tax exemption of $12.06 million.
It’s also important to note that your country may have tax treaties with other countries. For example, the U.S. has estate tax treaties with 15 countries and gift tax treaties with seven. If any of these treaties are relevant to your estate situation, you should research its terms. Note that some treaties provide more extensive protections than others.
- Research trust funding options
A popular estate planning strategy is to create tax-advantaged trusts. These allow you to pass on wealth to heirs in a gradual manner.
However, funding and withdrawing from a trust can get tricky when working across borders. So it’s important to be selective in where you open trusts and where you allow heirs to withdraw from them. In fact, many countries (especially those in continental Europe) don’t recognize trusts at all.
So you need to develop a trust strategy tailored to the locations where it will be used.
- Know the jurisdiction in which the decedent and assets are situated
Of course, you need to understand the jurisdiction in which the decedent (the person passing away) and their assets are situated. This will have the most immediate impact on how the estate is managed and taxed.
For example, the U.S. allows its citizens a lot of freedom regarding who you can leave your estate to, while other countries have strict regulations on what types of assets you can pass on and who you can transmit them to.
Countries also vary in how they tax estates. For example, in the U.S., estate taxes are taken directly from the estate. In other countries, however, taxes may be incurred by the person(s) receiving the inheritance. So if you’re not careful, your estate could be taxed twice!
To help keep your estate as intact as possible, know the relevant inheritance laws in the countries where you, your assets, and your heirs are located.
- Assemble a team of estate planning experts
Needless to say, planning an estate when your family is spread across the globe can be difficult. That’s why it’s crucial to assemble a team of experts to help you. A good team should include a financial advisor, a tax specialist, and a family law attorney.
The more professional help you have on your side, the further your estate is likely to go. Start creating your team today so you don’t lose massive amounts of capital to various governments.
- Regularly update your international estate plan
Finally, an estate plan isn’t a one-and-done project. It requires regular review and updating to ensure everything stays current and your growing wealth remains protected. This is especially true as family members move and new family members join the family across the globe.
If you follow all these tips, your international estate plan (and heirs) will be much better off!
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