Q&A: Estates, Inheritance and Taxes in a Global World
Q: My mother is a US citizen who lives outside the US, what law will govern her estate when she dies?
A: Generally speaking, most countries around the world provide that the law of the country where the decedent resided at the time of his death will govern the distribution of his/her estate. This general rule may have exceptions with respect to real estate assets, but the particular law in the country must be checked in order to provide a complete answer.
Q: I am a resident of Country X, I am not a US citizen and do not have a “green card”. I purchased a piece of real property in the US several years back. If I die, will there by US estate taxes imposed on this property?
A: Yes. The US imposes both gift and estate taxes on real property located within the US at the time of death. Foreign individuals can enjoy an exemption of $60,000. Any value of the US property above the exemption amount will be subject to a 40% estate tax. There are ways to plan for minimizing, eliminating or deferring US estate and gift tax.
Q: My father, a resident of Country X, died owning a piece of US real estate. He did not have a will. Who will inherit this property?
A: This question has two tiers. First, you must determine, under the laws of Country X, which law will govern the disposition? Second, once you know which law applies, you must determine, under that law, who are the beneficiaries of a decedent who died intestate (without a will). The US court will likely require an opinion from a counsel from the country of residence, opining as to which law actually applies to such a decedent.
Q: My father, a resident of Country X, died owning a piece of US real estate. What do I have to do to transfer this property to his heirs?
A: Generally, and absent other circumstances, you will have to undergo an ancillary probate proceeding in the State where the real property is located. This process is similar to a regular probate proceeding. You will have to file a petition for probate (if there is a will) or administration (if there is no will), pay the filing fees, and request the court to appoint someone as the Estate’s Executor or Administrator. Some US States will only agree to appoint a resident of that State for this fiduciary role. Assuming no objections are made and the probate/administration order is granted, then you must follow the ordinary procedure required for transferring real property within that particular State, including obtaining proof of payment of estate taxes (see Question 2).
Q: I have a bank account in the US. I am not a US citizen or “green card” holder. If I die, will there be any estate tax in the US on that account?
A: No. Bank accounts are not taxable for estate tax purposes.
Q: My uncle is getting older. He mentioned to me that he had a bank account in the US with approximately $10,000. He wants to leave this money to me. How can this be done?
A: Most financial institutions have a form on which beneficiaries of a particular financial asset (bank account, savings account, life insurance, pension accounts etc.) can be defined. The beneficiaries can be identified by name (e.g. John Smith) or by class (e.g. all my children, in equal shares). Designating a beneficiary on a financial account can, often times, avoid the need for a probate proceeding. (See Question 4).
Q: I own a property in the US, should I prepare a will regarding this property?
A: While not required, it may be a good idea to have a will that is designated to handle US assets. The advantages of such a separate will is that it can identify a local executor to handle all matters related to the will, it can address estate tax matters and it will be in English, and therefore avoid the need to translate a foreign language will. In addition, it will avoid having to bring forth evidence to the local court about which law governs the distribution. (see Question 3).
Q: I am a US citizen and live outside the US. Do I need a will in English?
A: A will in English is not required for US citizens. That said, it is recommended to have a will that can address matters that are unique for US citizens such as certain estate planning mechanisms (especially if you are married to a non-US citizen), US estate taxes, jurisdictional matters and similar matters. A will in English which is submitted to a foreign court, will probably have to be translated into the local language before it is probated in the country of residence.
Q: I am a US citizen and married to a non-US citizen. Can my spouse inherit me without paying any estate taxes?
A: As a US citizen, you are entitled to a life-time exemption from estate taxes of up to $5.34 million. Normally, a US Citizen who is married to another US citizen can leave his entire estate to his spouse, without subjecting the spouse to any estate taxes, even if the estate is larger than the exemption. However, when the spouse is a non-citizen, you cannot do that and any amounts bequeathed to your non-US spouse above the life-time exemption will be subject to 40% estate tax. There are, however, mechanisms that can allow you to defer the estate tax on any bequest to your spouse under certain circumstances
Q: My wife and I are US citizens living outside the US. Do we have to pay estate taxes in the US?
A: Yes. US citizens are subject to taxes (income, social security, gift, estate and generation-skipping taxes) on their world-wide income and assets, irrespective of the place of residence. As citizens, you enjoy the lifetime exemption for estate tax, but any value to your estate above the exemption will be subject to estate taxes at 40%.
Q: My husband is a green card holder and I am a US citizen. I heard that I can give unlimited gifts to my husband. Is this true?
A: No. A US citizen may give unlimited gifts only to his US citizen spouse. A non-citizen spouse can be gifted up to $145,000 per year. Any gifts made that are above this amount will be subject to gift tax.
Q: I am a resident of Country X. I inherited a U.S. pension account from my relative. When I tried to cash it, the financial institution told me they will take 30% tax. Is there any way to avoid this?
A: Yes. Depending on your country of residence, pension payments may be exempt from tax in the US, or perhaps be subject to a lower rate of tax. However, in order to obtain the treaty benefit, you must first obtain a US tax identification number and certain documentation to submit to the Internal Revenue Service.