By Joseph Ferrucci
July 25, 2018

 

Permanent residents face some unique issues in estate planning. Complications can arise from having assets and family members outside the United States, and having to navigate estate laws and estate taxes in more than one country. Anyone who is a permanent resident (and anyone whose spouse is a permanent resident) should seek the advice of a licensed, qualified estate planning attorney. Here is a preview of the key issues, which you may want to discuss with your attorney:

Two Separate Wills?

You may need a separate will in each country. If you execute a United States will that complies with the United Nations Convention on the Form of International Wills, the will should be recognized in any foreign country that has signed or ratified the Convention. But only 20 countries have signed or ratified. If the foreign country where you have assets is not a signatory, you may need a separate will in that country.

Can Foreign Assets Be Placed into a U.S. Trust? 

Consult with an attorney before trying to move foreign assets into your United States living trust. Your United States living trust may not be recognized abroad, because many countries do not have trust law. In such countries, an attempted transfer of property into a trust may not be valid, resulting in uncertainty about how the property will be administered after death. Even if your trust is recognized, transferring foreign assets into your United States living trust could be viewed as an expatriation of the asset from the foreign country, triggering tax consequences.

Estate Taxes

Like citizens, permanent residents get to use the full estate tax exemption (also known as the unified credit) to pass assets free of estate tax at the time of death. The 2018 exemption amount is $11.18 million per person, which means that estates worth less than $11.18 million will pass free of estate tax. This high exemption level means that most estates currently are not subject to the estate tax. (1) Permanent residents should keep in mind that all their worldwide assets will be counted toward their estate valuation for the United States estate tax, not just their United States assets. And foreign assets also may be subject to estate taxes in the foreign country where they are located.

Inheritance Taxes

Some countries have inheritance taxes instead of estate taxes. In countries with inheritance taxes, people inheriting assets are subject to tax on the inheritance they receive. (The U.S. estate tax, in contrast, is paid by the estate before any property is distributed to a beneficiary.) If your foreign relatives are your primary beneficiaries, consult with an attorney in the foreign country about what taxes your relatives may face when inheriting your assets.

What to Do with Personal Possessions? 

It may be difficult or impossible for your foreign relatives to travel to the United States to sort through your personal possessions and take items back to their country. Name a local executor or trustee who can help handle the personal property. The local executor or trustee can also be responsible for placing your pets in a new home. Also consider naming U.S. based family members, friends, or charities to receive your personal possessions. If you have no local beneficiaries to name, your executor or trustee can be directed to hold an estate sale and distribute the cash to your foreign family members.

Can Foreign Beneficiaries Receive U.S. Retirement Plans?

If you name a foreign relative as a direct beneficiary on a retirement plan, they may face hassle and delay in accessing the money. Whenever money is withdrawn from a qualified retirement plan, like a 401(k) or IRA, income taxes will have to be paid. And financial institutions will require a named beneficiary to present a social security number. Foreigners will have to apply for a social security number from the IRS, a process which can take months or years and require the assistance of a CPA or attorney. Naming a trust as the direct beneficiary, and then naming the foreign relatives as the trust beneficiaries, can avoid the IRS process.

Interested in learning more about estate planning for permanent residents? Consult with a licensed, qualified trusts and estates attorney.

 

End Notes

(1) Unlike citizens, permanent residents are restricted in their use of the marital deduction from the federal estate tax. If a permanent resident is inheriting from his or her deceased spouse, assets must pass through a Qualified Domestic Trust to take advantage of the marital deduction. In many cases, however, the high exemption level makes a Qualified Domestic Trust unnecessary. Consult with an attorney on whether you need a Qualified Domestic Trust in your estate plan.

 

DISCLAIMER: This article contains general information about legal topics. It is not, and is not intended to be, legal advice. Your use of information in this article does not make Joseph Ferrucci, Attorney at Law P.C., or any of its attorneys, your attorney and does not establish an attorney-client relationship. Every case must be analyzed independently, based on the specific and unique facts of the case. If you have questions about your particular case, consult with a licensed, qualified attorney. This article is intended for personal use only, and not for publication or distribution. 

© 2018 Joseph Ferrucci, Attorney at Law P.C.