Although most people have at least a couple unique wrinkles to address when planning their estates, people who own property outside the US face special challenges. Depending on the country where the property is located, the heirs involved, citizenship status of the owners and beneficiaries, value of the estate and other considerations, tax and transfer issues need to be fully researched and evaluated before a plan is finalized.

Estate planning for property outside the US is probably more urgent today than ever, with the influx of highly skilled technical workers entering the US or holding green cards bringing their non-citizen spouses here. In many cases, these individuals own real property and substantial personal property in other countries. In other circumstances, US citizens may own property in another country as well and will need advice regarding transfer and passing of that property to their heirs.

An estate planning attorney who merely advises such clients to seek the advice of an attorney in the country where the property is located is doing a disservice. By recognizing the issues involved and the goals of the client, the practitioner can research the federal and foreign laws applicable to the situation, enlist the assistance of other professionals if needed and properly advise if not draft the appropriate estate planning strategies.

Double Taxation

A major concern of anyone with real property in a foreign country is the risk of being taxed by the US and the non-domiciliary country when the property is transferred. Though US estate taxes only apply to substantial estates, this is a consideration for many foreign or US workers.

The US has estate tax treaties with the following countries: Australia, Austria, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, Norway, South Africa, Switzerland and the U.K. These countries may tax the estates of persons with property there if it is not the country in which the decedent lived, though the US will give a credit for the tax paid. Personal property is taxed by the country in which the decedent lived only. Also, the US has provisions in some of its treaties that apply only to that country.

International Wills for Property Outside the US

With international property, you should consider an international will rather than relying on one drafted in the US according to US or the individual state laws since many countries will not enforce the will’s provisions. You also risk having property in another country devised according to that country’s intestacy laws.

There are a number of terms and procedures necessary in drafting an international will to be recognized by those countries that have adopted the Uniform International Wills Act (Act). For instance, the will must be in writing, be the disposition of one individual only, be witnessed by two persons and authorized by an attorney if drafted in the US with each page signed by the testator, and accompanied by an attesting certificate from the authorized person or attorney that the will was drafted in accordance with the Act.

Not all countries have signed the Act and only 23 states and D.C. have enacted it, but Colorado has.

Carefully coordinate your US will with any foreign will you have to draft to address international property. Occasionally (but definitely not always), you can avoid having multiple wills by drafting a will that is recognized by the foreign country.

Non-US Spouses

Special consideration should be given to non-citizen US spouses who are not living in the US regarding international property transfers. Generally, all individuals, citizens or resident aliens, may take advantage of the federal estate tax exemption of $5.45 million ($10.9 million for married couples). But for those who are not citizens, but are married to a US citizen, and who reside abroad, the exemption is limited to $60,000 of assets located in the US. You can use the exemption for gifts made to non-citizen spouses to reduce your estate tax liability up to $143,000, which is vastly different from the unlimited transfers that can be made to citizen spouses.

To qualify for the marital deduction with a transfer to a non-citizen spouse, the assets need to be in a Qualified Domestic Trust (QDOT).

Trusts and Other Strategies

As indicated above, leaving assets to a non-citizen spouse can qualify for the marital deduction if the trust is a QDOT. There are numerous conditions to a QDOT so that you should have an experienced estate planning lawyer counsel you on these and set it up for you if this is the appropriate tactic for you. Among the conditions is that the trustee must be a US citizen or domestic corporation along with various elections that must be made and what happens if the spouse becomes a US citizen.

Other strategies include creating an irrevocable life insurance trust that allows foreign nationals to transfer trust assets to a resident US citizen without incurring gift tax consequences. There are other benefits regarding avoiding income and transfer taxes. Another possible consideration is having a non-citizen transfer assets to an LLC or a US partnership. These are complicated schemes that require the expertise of planners, tax specialists, and a knowledgeable attorney well-versed in international estate planning.

Contact The McKenzie Law Firm of Denver if you have international property or estate planning questions and concerns regarding transfer of assets, tax implications and how the laws of the US and foreign countries interact to affect your assets or those of non-citizen family members. You risk too much unless you are fully aware of what can be done to protect your assets and how to smoothly transfer funds without depleting your estate.