International Estate Planning
By: Matthew Erskine
Despite the sharp drop in international travel due the the Covid 19 pandemic, we are still living in a fully interconnected world, This world has people who are traveling for employment and those who own or inherit assets outside their place of residence. For those, International Estate planning is needed. International Estate Planning are the strategies and tactics used to achieve U.S. and Foreign clients objectives, including:
- Maintaining control and ownership of wealth and property during the client’s lifetime and after their death is most often the most prominent of the client’s objectives. Ownership and control are subject to what the true domicile of the client and their beneficiaries, the nature of the ownership rights of the client, their spouses, their beneficiaries and (in some cases) the rights of the political entities within which the property resides (capital controls, for example), and the allocation of tax jurisdiction between states based on bi-lateral or multi-lateral treaties. Ownership and control are particularly relevant when discussing transfer taxes (Estate, Gift, Inheritance and Generation Skipping Transfers) and outright or indirect transfers of ownership and control though probate, trusts and contracts.
- Providing financial security not only for the client but also for their spouse, children and other beneficiaries. As such, projecting the cash flow from their assets and estimating what the estate, income and excise taxes are or may be is an important feature of International Estate Planning. Cash flow is also important as leverage to modify the behavior of individuals in the client’s family (or the client themselves) when there is mental health, substance abuse or other problems. Many times, a child’s success in recovery is directly related to how access to financial resources can be leveraged through the estate planning process. Also, there is the financial security of the client themselves. Although one can hope for clients to remain independent and competent for their entire lives, it is prudent to plan for situations where the client is unwilling or unable to remain independent or is unable to handle their personal or business affairs.
International Estate Planning should also be seen as a way of making personal, business and family wealth management more efficient. This most often means making your actions tax-efficient especially in regards to U.S. Income, Excise, Estate, Gift, and Generation Skipping Transfer Taxes, as well as foreign income, estate, gift and excise taxes as well as the issues raised by the conflicts of laws, the transparency of financial transactions and compliance with restrictions on the use of tax and asset protection havens.
Reporting and confidentiality
For the international estate planning client, tax issues may not be the only concern. The confidentiality of the client’s personal, tax, and financial account information may be a very strong concern, affecting the tax planning strategies he or she is willing to consider and his or her tax compliance behavior. This is because the international estate planning client has no choice but to be open about his or her financial accounts and tax information, not just in the context of the United States, but of any country with which the client may have a tax connection.
The international estate planning client needs to be aware of these rules at least on a basic level, so that he or she can guide the client and reach out to local counsel in the jurisdictions when needed. U.S. FATCA legislation and describing how it may affect U.S. clients, and the OECD’s CRS framework, which effectively expands the financial account information network over a large portion of the world. Reporting is not optional, so be educated about the kind of information that must be disclosed, and the serious consequences of noncompliance.
Who does this effect?
International Estate Planning applies to two groups of clients:
1. U.S. citizens or non-US residents in the US with assets and/or family outside of the U.S. (“U.S. Clients” and
2. Non-US, non-resident, individuals who own an interest in property located within the U.S. (‘Foreign Clients”)
When is International Estate Planning Triggered?
International estate planning should be considered when either a U.S. Client or a Foreign Client:
3. Accumulates a significant accumulation of wealth during their lifetime,
4. Transfers a significant amount of wealth during their lifetime,
5. Plans on how to transfer a significant amount of wealth at their death,
6. Owns, divides or probates a significant amount of property.
Because of the FATCA and other reporting requirements, “significant” now means any aggregate amount in excess of $100,000 USD.
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