Estate Planning for Global Families
We’ve helped hundreds of expats who have moved to the United States navigate the complex rules that individuals face when relatives and assets span more than one country. Tax and estate planning can be a challenging topic for anyone, but the rules are far more complicated – and the stakes often higher – for those with cross-border ties.
Despite increasing mobility across countries, laws facilitating the inheritance of assets between residents of different countries have not kept pace with modern times. While we can now transfer money with the click of a button, inheritance laws – particularly those governing inter-country transfers – seem stuck in the 19th century. Likewise, laws providing for the care of minor children when family members live overseas are shockingly inhospitable.
As a result of these anachronistic laws, it can be incredibly difficult to coordinate the inheritance of assets located in different countries and to ensure the care of young children if something happens to their parents. A failure to properly plan can easily leave your loved ones with tens of thousands of dollars in legal bills, millions in unnecessary taxes, and countless hours navigating the rules of an unfamiliar jurisdiction. Worst of all, your child could end up in the care of a stranger.
The three main topics that planning for cross-border families should address are:
(2) Arranging assets in a way that allows for the easy transition to your heirs if something happens to you; and
(3) Minimizing taxes.
Protecting Minor Children: Appointing a Foreign Guardian
If you weren’t around to take care of your kids, you might think a family member could just hop on a plane and take your children back to your home country. Unfortunately, that’s not how things work – even if that person had a valid visa to enter the U.S. Specific legal processes must be followed, and these processes can take time – potentially more than a year.
All children under the age of 18 must have a legal guardian who is responsible for their care. While the parents are alive, they serve as the natural guardians of their children. If the parents pass away, another guardian must be appointed by a court, and a judge usually relies on a guardianship designation in the parents’ Wills when making the appointment. If that person is not a U.S. resident, their appointment as guardian can present legal and logistical challenges. A U.S. court may be reluctant to send your child to live in a foreign country, especially if the child is not a citizen of that country or if the country has different human rights standards than the U.S.
Even if the court does appoint a foreign guardian, the process can be lengthy. For these reasons, it’s important to appoint a back-up guardian who lives in the U.S. The guardians should be named in your will and in a temporary guardianship document.
At The Village Law Firm, we handle foreign guardianship planning on a regular basis. We’d be happy to help you create a plan to ensure that your children’s care will be secure, even in the worst of circumstances.
Facilitating the Transfer of Assets to Heirs
The difficulties in arranging for the transfer of assets after someone passes and international issues are involved can be summed up in one word: Bureaucracy. Despite increasing mobility across countries, laws facilitating the inheritance of assets between residents of different countries have not kept pace with modern times. While we can now transfer money with the click of a button, inheritance laws – particularly those governing inter-country transfers – are stuck in the 19th century. Specialized planning is required to prevent your loved ones having to deal with a bureaucratic nightmare.
In the United States, transferring assets upon your passing generally requires a court process called probate. When someone passes away, no one can access the assets left behind until such access is authorized by the probate court. Probate can be a burdensome process even in the simplest of circumstances. Add in foreign relatives or assets to the mix, and you have a recipe for years of red tape. In the meantime, your family may be without badly-needed funds to pay your mortgage or rent, healthcare expenses, and childcare costs.
Due to the bureaucratic challenges involved in transferring assets when international issues come into play, we advise clients with cross-border issues to avoid the court system entirely to the extent possible. Avoiding probate usually requires creating a Revocable Living Trust. A Revocable Living Trust dramatically reduces the paperwork and delays that result from probate.
Coordinating Planning for Assets Oversees
Other issues arise when you own assets in a country outside of the U.S. In this case, your U.S. estate planning attorney should coordinate with an attorney in the country where the assets are located. While most people should have only one will, if you own assets in more than one country, you may want to have a will for each of those countries. As a technical matter, a will executed in the country where you permanently reside can apply to certain assets in other countries; however, applying a U.S. will to non-U.S. assets — and vice versa — can prove challenging as a practical matter, resulting in substantial delays and expenses.
It is also important to have a power of attorney in each country where you own assets. A power of attorney can be extremely important if those assets are necessary to care for yourself or your family in the event you become incapacitated. Like a Will, a Power of Attorney executed in the U.S. may technically be enforceable in another country, the time and legal hassle required make relying on one power of attorney an unattractive option.
The U.S. tax rules applicable to cross-border families and individuals are often counter-intuitive and, in some cases, downright draconian. Getting good tax advice is critical for foreign nationals living in the U.S. or planning to live here. Too often, our firm sees clients who unwittingly engaged in simple transactions that have had devastating tax consequences for themselves or their families. Those consequences could have been easily avoided if they had consulted with a tax professional beforehand.
As a general rule, any time money or assets cross borders, you should consult with a tax professional prior to taking any action. Some common transactions or events that can trigger taxes are: a non-U.S. resident opening a brokerage account in the U.S.; a non-U.S. resident purchasing property in the U.S.; a U.S. resident receiving money from their parent who lives in another country; a U.S. resident receiving a foreign inheritance; a U.S. resident receiving money from a foreign trust; and a U.S. resident investing in a foreign mutual fund.
At The Village Law Firm, we advise foreign nationals on avoiding trouble with the I.R.S. and structuring transactions so that you and your family get to keep as much of your own money as possible under the law.