Estate planning makes sense if you want to protect your assets for the benefit of your family. You can include anything, even real estate or land outside of your own country. But when you have property on foreign soil, it becomes a bit more complicated. You have to think about taxes and how your beneficiaries can possess property away from where they are. Thankfully, as long as you have these tips to consider, you can keep your foreign property safe.
1. Avoid Double Taxation
When the foreign property ownership is transferred, realize that there is the risk of getting double taxation: by the US and by the country where the property is situated. The US has tax treaties with the following countries: Australia, Austria, Denmark, Germany, Finland, Greece, France, Italy, United Kingdom, Japan, Ireland, Netherlands, Norway, Switzerland, and South Africa.
If the decedent is a non-citizen but has properties in any of the countries mentioned, the respective governments can tax these properties. If the asset is taxable by the deceased’s land, let’s say the US, then the US government must grant credit to the property to cover foreign taxes. Property tax will apply only on assets that are in the decedent’s own country of residence.
To avoid getting taxed twice, you may want to explore two options on active and passive foreign incomes: the OECD Tax Treaty Model and the UN Tax Treaty Model. Also, if you’re going to start a business overseas, study the different incorporation types first to find out which can apply to your business model. For guidance on estate planning and foreign property, check out www.milehighestateplanning.com.
2. Steer Away From Fraudulent Conveyance
A property transfer is fraudulent when you intend to avoid creditors right away when filing for bankruptcy. In preparing for estate planning, the asset should be placed in a trust years earlier so that creditors won’t be able to take it away. You could run into legal troubles if you’re lying to individuals or institutions you owe money from. Examples of this are as follows:
- If the ownership was transferred to someone else, but you’re still using the property
- If you intentionally failed to disclose the information about the property
- The property was sold for less than the original market value
- If you’re unable to pay what you owe after transferring the property
- Asset transfer to immediate family members or a close friend
- Conducting an uncommon way of transferring assets
3. Hire Local Professional Assistance
You must seek an attorney where the asset or property is located. They’ll be able to help you navigate the country’s laws on tax and estate planning. Some countries are not familiar with or recognize legal documents such as trusts. If the government finds that the transfer is initiated through a will created in the United States, you could be looking at higher taxes.
A local attorney would also be helpful when you need to purchase property or sell it. For example, buying a property in the Caribbean is not an easy task if you don’t know how the laws operate. If you can’t leave your country for some reason, do your research to find the best lawyer to handle the purchase for you.
4. Use An International Will
If you want to avoid tax implications and other legal confusions, consider an international will for foreign assets. The will created under the governing laws of your property’s location will pursue its provisions and grant the property according to its own intestacy laws. Countries that recognize the Uniform International Wills Act include the following necessities when drafting wills:
- There should be an existing will in writing
- The drafted will must be witnessed by two people, all pages signed by the testator under the authorization of an attorney, if prepared in the US
- The transfer or the distribution in a will must be by one person only
- The attorney must accompany the will with an attesting certificate with the indication that it was drafted in accordance with the Act.
5. Disclose Foreign Assets To Your Attorney
Working closely with an estate planner means divulging all information on your foreign assets. It’s essential to include them in the planning of your estate—especially involving matters such as the heirs or designated persons who will manage it at the time of your passing. At the same time, your attorney will help you find out about the laws applicable, as well as tax implications. Keep in mind that all of your assets count in asset planning, even if they are offshore. This will ensure that your property will be transferred to the right person.
6. Place Assets Under Qualified Domestic Trust (QDOT)
Spouses with non-US citizenship and living in a foreign country may take the marital deduction on estate taxes as long as the foreign property is placed in a QDOT. It protects your assets for your surviving spouse who is not a US citizen so that they don’t have to pay property taxes, which won’t be possible under common taxation laws. It’s essential to comply first with all requirements to maintain the validity of the QDOT. It’s also important to note that the QDOT has limits and only defers paying estate tax until the non-US spouse’s passing.
7. Place Property Under International Trust
When you have an offshore property, you can place it under the protection of an international trust against the reach of creditors. It works the same way as a local trust, where you hold control over it for the sake of your beneficiaries.
An international trust provides a barrier to your foreign assets to make them out of reach of US law as judges don’t hold jurisdiction over foreign entities. But the protection only applies to Nevis, Belize, Isle of Man, and the Cook Islands—economically and politically stable locations.
The mentioned locations are also defendant-friendly. In the Cook Islands, creditors must prove that the defendant did the transfer to defraud them. At Nevis, creditors must put a deposit of USD$25,000 first before filing a lawsuit against a trust.
Your foreign property or business is among the many assets you worked hard for. To protect them, they must be included in the estate planning, and to be awarded to the person you trust eventually. You may also ask for assistance from your estate planner to find a local attorney where your property is located. Both can work together to make sure your goals are fulfilled.