Losing a loved one is a difficult experience, and it can only create more complexities if that loved one was an American living abroad. This creates a number of logistical challenges that you may never think about until they present themselves. For instance, what happens if an American citizen dies in another country, but in the context of estate planning? What happens to their U.S. assets, and will they start to go through probate? What about assets they amassed in the foreign nation, and does their Will carry any validity there? Trust & Will explores these important issues of cross-border estate planning and how to prepare.
Globalization leads to cross-border estate planning needs
Have you ever daydreamed of taking your computer and moving somewhere completely different? Portugal or Costa Rica perhaps? You’re not alone, and more and more Americans are making this their reality.
You may have heard the term “digital nomad,” which describes an individual who reports to work remotely while traveling. According to U.S. news, 16.9 million Americans identify as digital nomads, which is an astounding 131 percent increase from 2019. Many U.S. companies are accommodating Americans who wish to keep their jobs while living abroad. Moreover, some foreign nations are offering attractive and flexible visa programs, beckoning to those who wish to come.
Of course, there are many other reasons why an American may be living abroad for any duration of time. They could just be on vacation or visiting family. They may be a diplomat that works for the U.S. State Department. They could be a Chief Executive Officer (CEO) that runs a multinational corporation. Regardless, the point is that this is an increasingly internationalized and globalized economy where workers are mobile and migrant.
If you are an American citizen who is living abroad or is thinking about living abroad, putting an Estate Plan in place is critical. If you already have one in place, then it likely needs to be updated with a more international strategy. The next section addresses important estate planning considerations that will help illustrate why cross-border estate planning should be top of mind.
Global estate planning considerations
Living abroad presents a unique set of circumstances that requires careful estate planning in an international context. While estate planning is important for everyone, regardless of their location, being an American citizen living abroad adds additional complexities and thus requires more protection and proactive planning.
Here are some key reasons why an American living abroad should prioritize global estate planning:
1. International jurisdictions: Different countries have their own legal systems and regulations regarding inheritance and estate planning. Without proper planning, your assets may be subject to the laws of your country of residence, which may not align with your intentions. Global estate planning ensures that your assets are distributed according to your wishes, considering both U.S. laws and the laws of your host country.
2. Tax implications: The U.S. has a unique tax system that imposes taxes on its citizens, regardless of where they reside. That’s right — you can’t escape your annual tax returns just because you moved to Zimbabwe. As an American living abroad, you may still be subject to U.S. estate taxes on your global assets. Careful planning can help mitigate the impact of these taxes and ensure that your estate is structured in a tax-efficient manner.
3. Cross-border assets: When living abroad, you’ll naturally begin to amass assets, such as real estate, investments, and business interests. (Or even furniture!) Each country has its own set of laws and regulations regarding the transfer and distribution of assets. With an international Estate Plan strategy, you’ll better navigate these complexities and take any required action to ensure the smooth transfer of property across borders.
4. Power of Attorney, Health Care Proxy, & Guardianship: A key advantage of estate planning is the ability to legally authorize a trusted proxy to act on your behalf should anything happen to you. Even if you don’t want to plan for your eventual demise, it’s smart to at least plan for the unlikely case that you become incapacitated. Be sure to appoint a Power of Attorney to attend to your personal and business matters, a Health Care Proxy to make medical decisions on your behalf, and a Guardian to look after any dependents, such as children or pets.
5. Succession planning: If you have a business or a stake in a business, succession planning becomes even more important when living abroad. You are much more likely to encounter events where you could become incapacitated (for instance, falling victim to an earthquake and not having internet access or cell phone access for weeks). Safeguard your business operations by putting protection measures in place such as creating a succession plan and providing your proxy with the training, tool, and access required for them to be successful. Be sure to consider legal and cultural aspects of your host country if applicable.
6. Avoid probate issues: When dealing with assets in multiple nations, the probate process can become even more complex. By implementing a global Estate Plan, you can help minimize probate-related issues. This will come as a relief for loved ones in need.
Treatment of U.S. assets for deceased expats
If an American citizen passes away in another country, one of the first steps is to determine what assets they owned in the U.S. They may have a wide array of assets including real estate, bank accounts, investments, and personal property.
The key question to ask here is whether or not any of these assets are required to go through probate in the U.S. This is the legal process that validates a deceased individual’s Will, settles any outstanding debts, and distributes remaining assets to beneficiaries.
There is a difference between assets that are typically required to pass through probate and those that aren’t; click here to learn about probate vs. non-probate assets. Further, if the deceased had a carefully thought out Estate Plan in place, their assets may not have to pass through probate at all. For instance, they could have transferred all of their assets into a Living Trust that can transfer to beneficiaries outside of probate.
If it is determined that the decedent does have assets in the U.S. that must pass through probate, but you are also located out of the country, then you may find this guide helpful: International Probate: Applying for Probate from Abroad.
Treatment of assets in the host country
American expats who pass away may also possess assets in the country where they resided. The treatment of these assets depends on the local laws and regulations governing inheritance and estate administration. In some cases, the assets may be subject to a separate probate process or similar legal procedures within that country.
It is vital to engage legal counsel in the country of residence to navigate the local regulations effectively. Consulting with an attorney familiar with both U.S. and international estate laws will ensure a comprehensive understanding of the legal requirements and facilitate the smooth transfer of assets to the intended beneficiaries.
Validity of your American Will abroad
You should be familiar with two international conventions that enable a foreign country to recognize your U.S. Will as valid. Together, these conventions cover roughly 70 countries. If a foreign country considers your Will to be valid, it recognizes it as a legally binding document. However, there's a possibility that the country administering the Will will refuse to honor certain provisions if they conflict with local laws. This is particularly relevant when it comes to the disposition of your property and the choice of law governing your Will.
The two conventions are the Hague Convention on the Form of Testamentary Dispositions of 1961 and the Washington Convention, also known as the International Will Statute of 1973.
Conversely, if you don’t live in one of these countries that adopted these conventions, then the validity of your American Will depends on the local laws of the host country.
If you wish your American Will to be valid in your host country, it is recommended to first find out whether or not it has adopted one or both of these conventions. If yes, then you should not assume that every aspect of your Will is automatically valid. There may be certain parts or provisions that may not be honored based on the local jurisdiction. If the country has not adopted these conventions, then even more of your Will may need to be revised so that it meets specific language and execution requirements.
On the other hand, you may begin to feel as though reviewing and revising your Will so that it will be valid in multiple nations is overly complicated or costly. While it is possible for a single Will to transfer assets across the globe, it’s not always practical. Further, you may be placing an additional burden on your Executor to handle estate administration across multiple international jurisdictions. (Unless you name a professional Executor well-versed in this area.)
If this applies, you may want to consider the alternative of implementing “situs,” or multiple Wills in your Estate Plan. This will allow you to designate a Will for your American assets, and then subsequent situs Wills to govern property in other jurisdictions. This helps eliminate the need for your local probate court to oversee the probate administration of any property held in the foreign nation, especially if they are non-English speaking.
Here, it may be advisable to work with an attorney that has experience advising on international inheritance and tax issues who can help you coordinate and review your global Estate Plan and the appropriate strategy.
Estate planning tips for Americans living abroad
1. Establish an international estate plan: Americans residing abroad should work with an attorney experienced in international estate planning to create a comprehensive plan that considers both U.S. and foreign laws. This plan should include a Will, Trusts, Powers of Attorney, and Healthcare Directives tailored to the unique circumstances of living abroad.
2. Review your existing estate planning documents: If you have previously created estate planning documents while residing in the United States, it is crucial to review and update them to ensure they align with your current circumstances. International factors, such as tax implications and foreign property ownership, may require modifications.
3. Consider a Revocable Living Trust: Utilizing a Revocable Living Trust can help avoid probate for U.S.-based assets, providing a smoother transition of assets to beneficiaries. By transferring assets to the Trust during your lifetime, you can maintain control while simplifying the distribution process after your passing.
4. Engage professionals familiar with international estate planning: Seek the assistance of attorneys, accountants, and financial advisors who specialize in international estate planning. They possess the expertise to navigate the complexities of cross-border estate matters, ensuring compliance with relevant laws and optimizing tax efficiency.
5. Stay informed about host country laws: Familiarize yourself with the inheritance and estate laws of the country where you reside. Understanding local regulations will help you make informed decisions about asset ownership, beneficiary designations, and estate planning strategies.
Planning your estate for an international lifestyle certainly brings about its challenges, but you shouldn’t let that stop you. Living abroad can be wonderful and enrich your life. Thanks to technology, our workforce is increasingly mobile, taking more and more individuals across borders. This also means that global estate planning will become increasingly common. While it may not instantly become easy to navigate, there are more professionals and resources ready to help.
For instance, Trust & Will’s Probate is an online tool that will help you navigate the U.S. Probate process from anywhere. Even if you are living abroad, you can take advantage of it to navigate probate from anywhere. We hope you found these international estate planning tips helpful!
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