Estate Planning For U.S. Citizens Living Abroad

August 3, 2020

Estate planning is complicated, particularly when individuals are living overseas and must deal with two sets of taxes and regulations. Many people delay it, assuming they’ll find time eventually. It’s important to do it correctly — and sooner, rather than later.

Read on to learn the essentials of estate planning for U.S. citizens living abroad and how Expat CPA can help.

What Is Estate Planning?

Estate planning covers wills, inheritances and tax issues. Current U.S. laws limit inheritance tax for expats (better known as estate tax) to estates that exceed $11.58 million, but this price changes each year.

While many expats engaged in estate planning before relocating overseas, the old plans may no longer be viable given the realities of living abroad. What’s more, actions taken within the U.S. can have unintended consequences in the international country where expats have relocated and vice versa. The same is true for laws: What’s legally viable in the U.S. may run afoul of local laws, and international laws may contradict U.S. laws around inheritance.

Consider wills. U.S. tax law mandates that an asset’s location determines ownership. When it comes to personal property that the expat may have taken overseas, local laws determine ownership. Thus, expats with U.S. homes and tangible assets held overseas must dispose of the assets under the laws of each nation.

It may be advisable to have one will specifically dictating the handling of U.S. assets and another will for the new home country dictating the handling of foreign-held assets. This is so your assets are disposed of in a manner of your choosing. Should loved ones contest the legality of the wills, it can hold up the distribution of assets in probate.

Reducing Tax Liability

There are strategies expats can use to decrease their estate tax liability, such as marriage, spending down income, and gifting income to family and friends. For 2020, expats can gift friends and family up to $15,000 per person — without paying taxes on the gift. Trusts are another common way to ease tax liability while controlling where assets go. For example, an expat might use a Qualified Personal Residence Trust to transfer his or her home to another individual and retain the right to live in the home for some time. An expat may choose to gift the house to his or her child — while enjoying the ability to stay in the house whenever visiting the U.S. and avoiding gift taxes that would normally be associated with a real estate transfer.

With any assets, including employment and investment income, expats should take steps to avoid double taxation. There are many strategies that can mitigate or eliminate double taxation.

While expats need to plan for their estate, some may be in the position of inheriting money, real estate, or other income from family members living in the U.S. or abroad.

Inheritances such as these must be reported to the U.S. in accordance with state and federal laws. Determining the liability and reporting guidelines can be difficult for those living overseas. Thus, it’s important to seek a CPA with experience in these matters.

Get Help With Estate Planning for U.S. Citizens Living Abroad 

Estate planning is always tailored to an individual’s needs, but the extra considerations for expats mean that those living overseas need help from a CPA firm that understands the unique set of circumstances that come with international living.

At Expat CPA, we help expats with a range of services — from tax preparation to estate planning and foreign bank account reporting. We can get an overview of your situation and help you get your estate in order while providing thoughtful guidance along the way.

Contact us to discuss your estate planning needs in depth and learn how we can assist.

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