The United States hosts the highest number of immigrants in the world, but increasingly, Americans say they are looking to relocate permanently to another country. A large percentage of wealthy Americans are also interested in buying real estate overseas and living there at least part-time. While moving overseas is often a lifestyle decision, the practical implications of living abroad, including taxation and estate planning issues, cannot be ignored. Escaping Uncle Sam is not as easy as hopping on a plane to a far-flung location. Americans living overseas retain financial obligations to the US government. And if not physically present in this country, they should have somebody who is legally authorized to make financial decisions for them. Expatriates who live and own assets (accounts and property) in more than one country need an estate plan that reflects their international life. This may require working with estate planning attorneys in each country where they have assets.
Living Abroad and Double Taxation
Only two countries have citizenship-based taxation (also called double taxation): the United States and Eritrea.
Double taxation means that US citizens living abroad could end up paying income tax twice on the same income—once to their home country and once to their host country. Double taxation may apply to estate taxes as well.
Although estate taxes affect only the wealthiest Americans, 92 percent of wealthy Americans were actively looking to purchase real estate abroad in 2022, according to a Coldwell Banker report.[1] Foreign assets are subject to US estate taxes, so any property an American citizen owns overseas could be subject to this tax if their estate is worth more than the exemption amount ($12.92 million in 2023).
In addition to federal estate tax, some states also impose an estate tax or inheritance tax (Maryland imposes both).[2] Estate assets held in another country might additionally be taxed under that country’s laws. Not all countries impose estate taxes, however.
There are a few ways expatriates can avoid US double estate taxation. The most extreme way is to renounce US citizenship, a move that nearly one in four expats say they would consider.[3] Another option is to take advantage of the foreign death tax credit, which allows expats with property located in a foreign country to claim a credit on estate, inheritance, legacy, or inheritance tax paid to a foreign government.
Trusts can also reduce estate tax liabilities. Different types of trusts can be used for this purpose, including irrevocable life insurance trusts, charitable remainder trusts, and qualified personal residence trusts. But because some countries do not recognize trusts, a trust set up in the United States may not be valid in those countries.
US Expats and International Wills
An estate plan written with US laws in mind may not be legally valid for American citizens living abroad.
Someone who owns property only in the United States can likely get by with just a US will. But depending on the country where the expat resides, if they own property and other assets in that country, it may be necessary to have multiple wills or an international will.
An international will is designed for use in more than one country. Two international conventions on wills authorize a foreign country to recognize a US will:
- The Hague Convention on Form of Testamentary Disposition. For expats living in one of the Hague Convention signatory countries, their US will could be valid in their country of residence, even though the United States is not a signatory. The adopting countries include most of Europe.[4]
- The International Will Statute (the Washington Convention). This convention creates a uniform law on the validity of an international will. Participating nations generally recognize a US will if it conforms to the International Will Statute, which requires that wills include special language and follow specific execution requirements. Around a dozen countries, including the United States, have adopted the Washington Convention. However, unless an expat’s state of residence has signed on to the convention, their international will may not be considered valid in their host country.
Situs Wills
American Citizens Abroad, an expat resource site, notes that even if a single will controls the disposition of assets in more than one country, this may not be practical for the estate executor, who will have to coordinate estate administration across multiple jurisdictions. It may be particularly difficult to administer assets located in non-English speaking countries. In such cases, a primary will, either a US will or international will, could be combined with a separate situs will (a will used in a certain country) to control asset distribution.
Forced Heirship
A separate will might also be advisable for Americans who acquire property in a forced heirship regime. Residents of jurisdictions that have forced heirship provisions may have restrictions on whom they give their assets to and how much each person may receive. Forced heirship rules vary by jurisdiction but typically force a portion of estate assets to be passed to reserved heirs (i.e., descendants or spouses). Foreign and US courts may apply forced heirship laws to portions of an estate subject to these laws.
Guardianship and Power of Attorney for Expats
Living overseas can create legal complications that are best addressed in an estate plan.
For example, the parents of minor children living overseas may have a guardianship provision in their will that names a US resident as guardian in the event that both parents pass away. This will require more in-depth planning and an understanding of which laws will apply to the guardianship of your children. If the guardian is not a resident of the country where the children live, though, the children might have to be moved back to the United States. Additionally, without a legally recognized guardian accompanying them, minor children cannot typically leave the country in which they reside. Alternatively, a person in the host country could be named as a guardian in the will. Estate plans should name backup guardians to supplement the first-choice guardian.
Regardless of whom the parents nominate, the local court and laws determine who will take care of the children. For families living abroad, a local court, not a US court, could have authority over the matter. Expat parents should understand which laws apply to guardianship issues and ensure that, if there are multiple wills effective in different countries, guardianship provisions are clear and do not conflict.
Other estate planning considerations for expats include financial and medical powers of attorney.
- Financial power of attorney. Expats who retain US assets need somebody who can perform financial transactions for them while they are out of the country. Actions like selling property, opening and closing accounts, and registering vehicles cannot always be done remotely. Giving a trusted person a power of attorney lets them transact on an expat’s behalf. A power of attorney can be open-ended or limited and revoked at any time.
- Medical powers of attorney. A financial power of attorney can be set up to take effect at the time a person becomes incapacitated. But incapacitation raises healthcare questions that can only be addressed through a medical power of attorney, which authorizes a proxy to make medical decisions on another’s behalf. It is advisable to name a medical power of attorney in each country where an expat resides. A US-based power of attorney may not have the authority to make medical decisions in a foreign country.
Does Your Estate Plan Match Your International Lifestyle?
Whether you are living overseas currently, have plans to relocate to a foreign country, or just want to invest in property outside the United States, you will have to adapt to a new culture and new laws, including laws that affect taxation and estate planning. Your US estate plan documents may be inadequate to deal with legal questions raised by expat life, putting your wealth and legacy at risk.
Careful international estate planning can help address the challenges of calling more than one country home. Due to differences in laws, it may be necessary to work with experienced attorneys in each country.
If you are an American abroad, we recommend meeting with our attorneys to see if your estate plan reflects your current circumstances.
Nielsen Law PLLC provides family-focused estate and business planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area. For more information, and to learn about our firm, please contact us. We look forward to working with you.
[1] Abby Montanez, Many Wealthy American Homebuyers Are Moving Overseas. Here’s Why., Robb Report (Feb. 7, 2023), https://robbreport.com/lifestyle/news/wealthy-americans-moving-abroad-1234804365/.
[2] Janelle Fritts, Does Your State Have an Estate or Inheritance Tax?, Tax Found. (Jun. 21, 2022), https://taxfoundation.org/data/all/state/state-estate-tax-inheritance-tax-2022/.
[3] Kate Dore, The Top Reason Why Americans Abroad Want to Dump Their U.S. Citizenship, CNBC (May 18, 2021), https://www.cnbc.com/2021/05/18/the-top-reason-why-americans-abroad-want-to-dump-their-citizenship.html.
[4]Leanne Fryer Broyles, Estate Planning for US Citizens Living Overseas, Am. Citizens Abroad (Sept. 20, 2017), https://www.americansabroad.org/articles/estate-planning-for-us-citizens-living-overseas/.
