It is no secret that we live in an increasingly globalized world. That means it is becoming more and more common for individuals to find themselves abroad for any number of reasons that may include work, family, retirement, or even simply a desire to travel extensively. Whatever the reason for being abroad, United States citizens that are abroad for an extended period of time are likely to acquire some kind of property. In fact, for many individuals the affordable nature of assets abroad is one of the most appealing reasons for going abroad. But what happens to those assets when they are transferred in a comprehensive estate plan? A recent article from the New Jersey Law Journal highlights the fact that international estate planning can be difficult, but an experienced estate planning attorney can make a big difference.
The IRS and Foreign Asset Trusts
One of the most important things to ensure is that any foreign trusts established by U.S. citizens abroad have been established for purposes other than avoiding U.S. taxes. When the individual that creates the trust passes on and it is time for those assets to be distributed to heirs, the IRS will look at the trust’s structure and purpose to determine whether the trust was created for a legitimate purpose or for the sole purpose of avoiding U.S. tax penalties.
That is one reason why it is essential that all reporting requirements for trust assets and distributions have been met, too. Failure to do so can impose harsh penalties and tax consequences on assets that have already been received or sometimes even those still within the trust. This is also true for indirect distributions, or those distributions going to someone else but actually benefiting a different person.
Foreign Laws and Trusts
It is equally important to make sure that a foreign trust not only comports with laws and requirements in the United States, but that it is also in line with the laws governing it in the foreign nation in which it has been established. Some nations have rules for seizure of assets if trusts have not been established correctly and some simply have similar reporting requirements as those in place in the United States. You may find conditions for establishing assets trusts more favorable abroad if you have the right to do so, or you may find the laws in the United States to be more amendable to your ultimate goals for your assets. There are a number of different types of trusts that can be established abroad to safeguard your foreign assets and there are a number of trust options available in the United States where foreign assets have a place.
Whatever the legal scheme governing trusts, assets distributions within the country, or asset transfers to a foreign country may be, it is important to be aware of it and to work with an experienced estate planning attorney both here in the United States and in the country in which the trust is being established. These attorneys can work together to make sure your rights are protected in both jurisdictions and help ensure that as much value as possible tied to your foreign assets can be distributed to heirs in the United States should you choose to do so.