One of the more unique present day aspects of estate planning comes from the very mobile and connected nature that many people who need estate planning have. Many people will not just move across countries for their jobs but across borders. Globalization has brought the world closer together but added another layer of complexity for when it comes to protecting and planning for assets. A citizen of the United States needs to know what law governs taxation and their estate for their income, assets and holdings both in the United States and abroad.
Taxation Is Everywhere
Despite what many may believe, U.S. citizens and resident aliens are subject to U.S. income and estate tax on their worldwide assets. It does not matter what country those assets might be in, the income and assets must be reported. In fact, U.S. Citizens working overseas and foreign citizens considered residents of the United States must file reports with the IRS if the total value of their foreign financial accounts exceeds $10,000 at any time during the year. U.S. citizens who are officers or directors in a foreign corporation who own more than 10 percent of the foreign corporation must also report ownership.
Avoiding Double Taxation
The United States is a member of a number of treaties with different countries to avoid double taxation. These treaties usually allow for the citizen to pay income and estate tax to only one country depending on the circumstances. In certain cases, citizens may either be exempt from paying taxes to one country or receive a credit equal to the amount paid to another country. The IRS website has more information.
Planning For Ancillary Probate
Different countries have different laws concerning the procedures for passing property on after a person dies. If a United States citizen holds a large amount of assets outside of the country, it may be prudent of him or her to have multiple wills for each country to avoid ancillary probate. These wills can be tailored to each particular jurisdiction and may have tax benefits in doing so. This is especially important when real estate located in foreign countries is involved.
Lack of Portability
One of the most significant estate planning hurdles for a multinational family or couple is the lack of “portability” availability that is usually available in the estate tax exemption in the United States. “Portability” refers to the surviving estate tax exemption that spouses may generally utilize after the first spouse has passed. If one spouse is not a United States citizen, the portability of the exemption is not honored for the remaining foreign national spouse.
While the estate tax exemption is considered quite high right now at $5.45 million and double that for spouses, just a little over a decade ago it was much lower in the hundreds of thousands. The estate tax exemption is often a political football, raised or lowered depending on who is in charge at the time.
More Countries, More Assets, More Problems
No matter what the issue might be, holding property, assets or receiving international income vastly increases the complexity of the taxation and passing on of your estate. Consulting with those experienced with estate planning is almost a necessity.
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