While no family should be without an estate plan, having a comprehensive plan in place is particularly important when your family crosses borders. Estate planning can be a challenging task for anyone, but add various citizenships, minor children and foreign assets into the mix, and it can become downright formidable. At the same time, failing to have a plan in place can leave your family wading through a thicket of foreign court procedures and whopping tax bills in the event of an unexpected death.
Below are some tips to help you protect your children, ensure financial resources are available to pay important family expenses on short notice, save thousands—or even millions—of dollars in taxes and make it easier for your family members to coordinate the distribution of assets across several countries.
1. Designate Both a Temporary and a Permanent Guardian for Your Children
If you have minor children, your first priority should be making sure a trusted person is able to take legal custody of your children in the event of your death or an injury that leaves you unconscious. When you live in a foreign country, far from family and close friends, it’s particularly important to make sure you’ve identified someone in that country who could immediately take custody of your children. It may take time for a family member to travel to see them, and even then they may face an uphill battle in getting your children out of the country. Clear documentation of a temporary and permanent guardian can go a long way toward protecting your kids in this scenario.
2. Execute a Power of Attorney for Each Country Where You Own Assets
A power of attorney authorizes a designated person to access your assets in the event of your incapacity. This document can be extremely important if that money is necessary to care for your family or for yourself. Foreign financial institutions and foreign governments are unlikely to recognize the validity of a power of attorney signed in another country. For this reason, it is important to execute a power of attorney for each country where you own assets. To execute a power of attorney in a foreign country, you will have to work with an attorney who practices in that country. Some financial institutions may have their own power of attorney forms you can use instead. (For related reading, see: Reasons to Designate a General Power of Attorney.)
3. Know Your Domicile
Your domicile is the legal term for the place where you live and intend to stay. The concept of domicile plays an important role in estate planning and estate administration. Your estate is administered in, and under the laws of, the country in which you are domiciled, and estate taxes often turn on where a person is domiciled. (For related reading from this author, see: Estate Planning for Non-U.S. Citizens: Your Domicile.)
4. Execute More Than One Will
While most people need only one will, if you own assets in more than one country, you may want to have more than one will. A will executed in your domicile country should apply to non-real-estate assets in other countries; however, applying a U.S. will to non-U.S. assets can prove challenging as a practical matter, resulting in substantial delays and expenses in transferring those assets.
5. Seek Advice on How to Minimize Taxes
Non-U.S. residents who are not U.S. citizens are subject to a 40% estate tax on the value of their U.S. assets exceeding $60,000, which can result in a huge tax bill for the unwary. Careful planning in the purchase and gifting of your assets can help to minimize the effect of this draconian tax.
If you are a permanent U.S. resident but not a U.S. citizen, you are subject to U.S. estate tax on all your assets, wherever they are located; however, you benefit from the much larger ($5.49 million in 2017) estate tax exemption that is available to U.S. citizens. On the other hand, permanent resident spouses are not entitled to the unlimited exemption that applies to gifts and bequests to U.S. citizen spouses. Where one or both spouses are green card holders, special planning may be required to minimize your family’s estate tax exposure. (For related reading, see: Tax Rules for Resident and Non-Resident Aliens.)
Tax and estate laws can prove a minefield for multinational families. Careful planning can reduce unexpected tax liabilities and minimize the challenges your loved ones could face if you passed away.