As of 2018, cross-border families planning an estate will require an investment plan meeting relevant rules to domicile, succession, generation-skipping transfer, and gift tax laws in each country where distribution will occur at the time of a decedent’s death. International estate planners use investment techniques specific to cross-border transfers and enforceable transfer tax situs rules, domestic and foreign credits, and treaties where they may apply.
Recent Domestic Tax Reforms
U.S. federal Internal Revenue Service (“IRS”) tax law reforms in 2018, have modified estate and gift tax lifetime exclusion amounts for:
- Individuals: $11.2 million personal lifetime exemption;
- Couples: $22.4 million-per-couple lifetime exemption;
- Interspousal transfers: unlimited tax-exemption for gifts and bequests transferred between citizen spouses during their lifetime(s) and upon death;
- Surviving spouse portability: where first-to-die spouse’s exemption amount transfers to the second-to-die spouse.
Ask a licensed estate law attorney about filing an IRC 4.25.4.1 (08-05-2016) Estate Tax Return Filing Requirements for Estates with International Issues.
Rules of Domicile
Domicile rather than residence is basis to jurisdiction under federal law and state laws of estate and trust transfer. Transfer tax implications of an expatriate’s (or non-U.S. person’s) domicile depend on applicability of an estate tax treaty between the U.S. and a foreign country of domicile, residence, and/or citizenship; and availability of tax credits in those relevant jurisdictions where taxes may be levied.
Rules of Situs
The IRS considers situs (site) of cross-border estate assets and transfer taxation. General situs guidelines for estate tax exposure consider the following U.S. situs assets: business Investment Funds, money market funds or cash in a brokerage account, qualified retirement plans funded by a U.S. employer, real property, tangible property, stocks issued by a U.S. corporation (including those certificates held abroad), privately offered bond debt instruments, and life Insurance and annuities. Intangible property transfers can be more complicated. For example, an asset may be categorized as a non-U.S. situs asset for gift-tax purposes, and a situs asset for estate tax purposes.
Estate Tax Treaties and Foreign Tax Credits
The U.S. is signatory to estate and/or gift tax treaties with sixteen foreign countries. The treaties serve to determine transfer taxation of assets held within the cross-border estates and provide reciprocal rules to prohibition of discriminatory tax treatment and double taxation. Where no treaty exists, foreign transfer tax credits may still offer alleviation from double taxation (26 U.S. Code § 2014 Credit for foreign death taxes).
Rules of Succession
Rules of succession and forced heirship found in foreign civil law jurisdictions like continental Europe and Latin America, are analogous to U.S. federal common law rules of intestate succession guiding distribution of a decedent’s wealth at time of death. Distinct from domestic estate law rules of tax-exemption for heirs and beneficiaries, civil law succession regimes generally impose an inheritance tax on distributions.
New York Estate Law Attorney
International estate planning advisory guides the formation of an estate or trust where transfer tax situs rules, domestic and foreign credits, and treaties apply. When planning an estate, a licensed estate planning attorney will assist a client in making decisions about cross-border transfer of assets and other tax-related matters involving beneficiaries. Ettinger Law Firm is a licensed New York attorney practice with experience in international estate law planning and probate litigation. Contact Ettinger Law Firm for an estate planning consultation.
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