ESTATE PLANNING FOR AMERICANS LIVING ABROAD
The United States hosts the highest number of immigrants in the world. But, many Americans are also looking to move to another country. Some want to move permanently, and others want to buy real estate and live there part-time.
If you're looking to move overseas, taxation and estate planning issues need to be considered. Escaping Uncle Sam is not as easy as hopping on a plane to a far-flung location. Americans living overseas retain financial obligations to the US government.
You should also consider who you would like to make financial decisions for you while you're away. Expatriates who live and own assets in more than one country need an estate plan that reflects their international life. You may want to work with estate planning attorneys in each country you have assets.
Living Abroad and Double Taxation
Only two countries have citizenship-based taxation (also called double taxation): the United States and Eritrea. Double taxation means that US citizens living abroad could end up paying income tax twice on the same income—once to their home country and once to their host country. Double taxation may apply to estate taxes as well.
The wealthiest Americans are especially vulnerable to estate taxes, and 92% of them are looking to move abroad. Any property an American citizen owns overseas could be subject to estate tax if their estate is worth more than the exemption amount ($12.92 million in 2023). In addition to federal estate tax, some states impose their own estate or inheritance tax (Ohio does not). Estate assets held in another country may also additionally be taxed under that country’s laws.
There are a few ways expatriates can avoid US double estate taxation. The most extreme way is to renounce US citizenship. Another option is to take advantage of the foreign death tax credit. This credit allows expats with property located in a foreign country to claim a credit on estate, legacy, or inheritance tax paid to a foreign government. Trusts can also reduce estate tax liabilities. Different types of trusts can be used for this purpose, including:
Keep in mind that some countries do not recognize trusts. A trust set up in the United States may not be valid in those countries.
US Expats and International Wills
An estate plan written with US laws in mind may not be legally valid for American citizens living abroad.
Someone who owns property only in the United States can likely get by with just a US will. But, depending on the country where the expat resides, if they own property and other assets in that country, it may be necessary to have multiple wills or an international will.
An international will is designed for use in more than one country. Two international conventions on wills allow a foreign country to recognize a US will:
The Hague Convention on Form of Testamentary Disposition For expats living in one of the Hague Convention signatory countries, their US will could be valid in their country of residence, even though the United States is not a signatory. The adopting countries include most of Europe.
The International Will Statute (the Washington Convention). This convention creates a uniform law on the validity of an international will. Participating nations generally recognize a US will if it conforms to the International Will Statute. The statute requires that wills include special language and follow specific execution requirements. Around a dozen countries, including the United States, have adopted the Washington Convention. But, unless an expat’s state of residence has signed on to the convention, their international will may not be considered valid in their host country.
American Citizens Abroad notes that even if a single will controls the distribution of assets in more than one country, this may not be practical for the executor. It may be particularly difficult to administer assets in multiple jurisdictions in non-English speaking countries. In such cases, a primary will, either a US will or international will, could be combined with a separate situs will (a will used in a certain country) to control asset distribution.
A separate will might also be advisable for Americans who acquire property via forced heirship. Forced heirship rules vary by jurisdiction but typically force a portion of estate assets to be passed to reserved heirs (i.e., descendants or spouses). Foreign and US courts may apply forced heirship laws to portions of an estate subject to these laws.
Guardianship and Power of Attorney for Expats
Living overseas can create legal complications that are best addressed in an estate plan.
For example, parents of minor children living abroad may want to include a guardianship provision in their will. This provision may name a US resident as guardian of the children in the event both parents die. If the guardian is not a resident of the country where the children live, the children might have to be moved back to the United States. Additionally, without a legal guardian accompanying them, minor children cannot typically leave the country in which they live. Estate plans should name backup guardians to supplement the first-choice guardian.
Regardless of whom the parents nominate, the local court and laws determine who will take care of the children. For families living abroad, a local court could have authority over the matter. Expat parents should understand which laws apply to guardianship issues and ensure that, if there are multiple wills effective in different countries, guardianship provisions are clear and don't conflict.
Other estate planning considerations for expats include financial and medical powers of attorney.
Financial power of attorney. Expats who retain US assets need somebody who can perform financial transactions for them while they are out of the country. Actions like selling property, opening and closing accounts, and registering vehicles cannot always be done remotely. Giving a trusted person a power of attorney lets them transact on an expat’s behalf. A power of attorney can be open-ended or limited and revoked at any time.
Medical powers of attorney. A medical power of attorney authorizes a proxy to make medical decisions on another’s behalf. It is advisable to name a medical power of attorney in each country where an expat resides. A US-based power of attorney may not have the authority to make medical decisions in a foreign country.
Create an Estate Plan to Match Your International Lifestyle
Whether you're living overseas currently, have plans to relocate, or just want to invest in property outside the US, you'll need to update your estate plan. Your US estate plan documents may be inadequate to deal with legal questions raised by expat life, putting your wealth and legacy at risk. Careful international estate planning can help address the challenges of calling more than one country home. Due to differences in laws, it may be necessary to work with experienced attorneys in each country.
If you're planning to travel abroad, we recommend meeting with our experienced estate planning attorneys first in Dublin, Ohio. We can assess your current estate plan and see if it reflects your new needs. Give us a call at 614-408-0529 to schedule an appointment.