Planning for U.S. Residents with Assets Abroad

If you own assets outside the U.S., it is important to incorporate those assets into your overall estate plan to ensure the smooth administration of your estate.  If you own real estate abroad, you may wish to transfer the property into a U.S. business entity in order to make it subject to estate administration in the U.S.  Otherwise, the property may be subject to the inheritance laws of the country where the property is located, which may be very different from U.S. inheritance laws.  For example, many countries impose “forced heirship” rules that may contradict the wishes expressed in your will.  They may also impose harsh inheritance or estate taxes.  In certain cases, failure to adequately plan can cause your assets to be subject to tax in both countries, resulting in double taxation.  In addition to these problems, failure to implement a coordinated plan could leave your family with a tangled and expensive international probate dispute down the road.

It is important to remember that, as a permanent U.S. resident – whether or not you are a U.S. citizen – you are subject to U.S. gift and estate taxes on all your assets, no matter where in the world those assets are located. If the value of all your assets exceeds the exemption amount ($5.25 million in 2013) at the time of your death, the amount in excess of the exemption amount will be taxed at a rate of 40%.  Your estate may receive a tax credit for any foreign estate or inheritance taxes imposed on property located overseas.  As explained here, you can minimize – or even eliminate – federal estate taxes through careful planning.

Relinquishing your status as a U.S. citizen or permanent U.S. may is unlikely to eliminate your estate tax concerns.  You may be subject to higher U.S. estate taxes as a non-U.S. resident, and relinquishing your green card or citizenship may subject you to the exit tax (or expatriation tax).