Whether you are a U.S. citizen who owns a villa on the coast of Italy, or a townhouse in the middle of bustling London, estate planning becomes more complicated when two countries are involved. Owning assets abroad can cause many questions to arise regarding a foreign estate’s will, inheritance laws, and foreign taxation laws.
It is essential to have an experienced estate planner who understands the realities of foreign estate ownership in both the United States and abroad. In order to maximize your foreign asset, consider the following: foreign taxation, the creation of multiple wills, and the international will.
When transferring foreign property, many U.S. citizens are surprised to discover the pitfalls of double taxation. Upon transfer, the property in question will not only be taxed according to U.S. law, but will also be taxed by the foreign country.
The United States has established tax treaties with numerous foreign countries allowing the country in which the estate is located to tax the estate if the estate resides in the non-domiciliary country. If the domiciliary country taxes the foreign estate, it must provide credit to the estate to cover the foreign country’s tax, causing the owner to pay the higher of the two taxes.
However, the United States maintains the right to tax its citizens without regard to the treaty between the two countries, thus forcing the property owner to pay a double tax.
Creating Multiple Wills
Most foreign countries will only acknowledge a U.S. will under special circumstances and do not typically recognize U.S. wills as valid unless the will has been formally valid under that jurisdiction. In an American will, an individual is able to transfer their property freely to whomever they choose. In other countries, the local laws of succession would not honor the American will when dealing with foreign property, thus revoking any claim a U.S. beneficiary may have.
In order to best protect your foreign assets, it can be beneficial to draft a will in both the country in which the estate is located as well as the United States. Although creating two wills seems simple enough, without proper coordination from both your U.S. and foreign counsel when drafting the documents, one will may cancel out the other will. Adding a supplementary will in the foreign jurisdiction may avoid this problem; however, be sure that any amendments do not revoke any portions of the original will. Lastly, any failure to update a will with any new foreign property will cause foreign intestacy rules to apply, oftentimes disregarding any wishes the owner may have had for the property’s beneficiaries.
Today, many people choose to prepare their foreign estate for death by establishing an international will. In order to unify local and foreign law, the creation of the international will sought to simplify estate planning for those who owned property and assets in multiple nations. To be valid, an international will must:
- Be in writing (handwritten or typed) in any language
- Be signed and dated in the presence of two witnesses
- Include a signature by an authorized person, testifying that every requirement for an international will is met
Though this alternative sounds simple enough, very few countries have chosen to recognize the use of an international will, making it useless to the majority of the world. Despite this, the greatest benefit to the international will is the fact that, when successfully drafted, the document holds true in any country that has agreed to the regulations set forth.
Plan Ahead and Seek Counsel
When dealing with foreign property and international law, the best approach is to consult with an experienced attorney in both the United States and in the country where the property is located in order to properly understand local laws and your rights in a foreign country. It is always beneficial to plan ahead and protect your assets through estate planning rather than dealing with the ramifications after death during the probate process.
The attorneys at Smith Strong, PLC are here to help you navigate your estate planning options. To sign up for our free Estate Planning Seminar or schedule your first meeting with attorney Van Smith and his team please call one of our offices at (804) 325-1245 (Richmond) or (757) 941-4298 (Williamsburg).
Editorial Assistance by: Isabella Cruz