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US Expats Must Carefully Consider Estate and Probate Taxes If They Have Real Property Outside the US

US Expats Must Carefully Consider Estate and Probate Taxes If They Have Real Property Outside the US

US Expats Must Carefully Consider Estate and Probate Taxes If They Have Real Property Outside the US

 

 

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If you have assets or live outside of the USA you need to plan your estate carefully. You most likely need to prepare a Will or if applicable a trust in the country in which you live (or own assets).  This document will provide for the disposition of your foreign assets in the event of your death. You also need to determine what type of foreign taxes (inheritance or transfer tax) your heirs may incur upon your death, on your assets located outside of the USA.  In some foreign countries failure to prepare a Will or Trust could result in your offshore assets being distributed under that country's laws and could result in the distribution of the assets located in that country, in a manner that may not be as you had wished.  Some countries may honor your US will or trust and others may not.  It is often best to have specific instruments drawn up in each country; you own assets that comply with local laws, by a local attorney who specializes in the laws of that country.   

 

Remember, if you have prepared a power of attorney appointing someone to handle your affairs, in many countries (including the US) that document will expire upon your death. So do not rely on that power of attorney holder to resolve the disposition of your foreign or US assets.

 

You should also prepare a US Will and/or Revocable Living Trust (which avoids expensive probates in most US states which cost time and money and take even more time) to cover the disposition of your US assets. A Living Trust not only avoids probates, but allows your assets to be distributed to your names heirs, bills and taxes paid, etc. in a reasonable amount of time.  A living trust is also not public record and the disposition of your assets, the amount and to whom, remains private.   A living trust can also establish trusts for your minor children or grandchildren to administer their inheritance for them until they reach maturity.

The US does impose its estate tax on your worldwide assets, though it will allow a credit in most situations for any foreign inheritance tax you had to pay on assets located outside of the US.  If you are married both you and your spouse can secure a $5,000,000 exemption from estate tax each in the event you pass on in the 2011 and 2012.  After that, the exemption for each spouse goes back to $1million each.  If your estate exceeds the applicable amounts, the value of your assets above that amount will be taxed up to 35%. 

If you are not a US resident and have assets in the USA, only the first $60,000 in assets is exempt from US estate tax. The amount of your estate located in the USA above that amount will be taxed.

About 15 US states also have estate or inheritance taxes which may be in addition to your Federal Estate Taxes. 

The  four essential  US estate planning documents you need are:

  • Will or
  • Revocable Living Trust and a
  • Durable Power of Attorney and a
  • Health Care Directive
 

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