Estate Planning for Expatriates: Key Considerations for Americans Living Abroad
Americans who live abroad or own property in another country may need an estate plan that addresses the laws of more than one jurisdiction.
An expatriate estate plan may need to coordinate US and foreign wills, taxes, trusts, powers of attorney, healthcare documents, guardianship provisions, and the administration of property located in different countries. This often requires assistance from estate planning attorneys in both the United States and the country where the expatriate lives or owns assets.
Why Is Estate Planning Different for Expatriates?
The United States hosts more immigrants than any other country, but an increasing number of Americans are also considering living abroad. Some relocate permanently, while others purchase overseas real estate or divide their time between the United States and another country.
Moving overseas may be a lifestyle decision, but the practical implications of living abroad—including taxation and estate planning—cannot be ignored.
Leaving the country does not necessarily end a US citizen’s financial obligations to the US government. According to the Internal Revenue Service, US citizens are generally subject to US tax on their worldwide income, even when they live outside the country.
Living abroad can also make it harder to handle US financial and legal matters in person. An expatriate may need someone in the United States who is legally authorized to manage property, sign documents, or complete transactions on the expatriate’s behalf.
For these reasons, people who live or own assets in more than one country need an estate plan that reflects their international lives.
Tax Considerations for Americans Living Abroad
US citizens living abroad may be subject to taxes in both the United States and their country of residence.
This does not always mean that the same income or property will ultimately be taxed twice. Foreign tax credits, exclusions, deductions, and applicable treaties may reduce or eliminate some forms of double taxation. However, the rules are complicated and depend on the individual’s citizenship, residence, assets, income, and the laws of the other country.
Income Tax and Foreign Tax Credits
US citizens are generally taxed on their worldwide income regardless of where they live.
The IRS explains that qualifying taxpayers may be able to use the foreign tax credit for certain income taxes paid to another country. Some expatriates may also qualify for the foreign earned income exclusion or foreign housing exclusion.
These provisions have specific eligibility and reporting requirements. They should not be treated as automatic exemptions from US tax.
Estate and Inheritance Taxes
Foreign property may also be relevant when calculating a US citizen’s taxable estate. Federal estate tax generally applies to a US citizen’s worldwide estate, not only to property located in the United States.
Federal estate tax affects only estates exceeding the exemption in effect for the year of death. Because Congress can change that exemption, an estate plan should not rely on an amount quoted years earlier.
State-level taxes may also apply. Maryland is unusual because it imposes both an estate tax and an inheritance tax, depending on the circumstances and the relationship between the deceased person and the beneficiary.
Property located overseas may also be subject to estate, inheritance, succession, or similar taxes in the country where the property is located. Not every country imposes these taxes, and the rules vary considerably.
The United States has estate and gift tax treaties with certain countries. Depending on the circumstances, a treaty or foreign death-tax credit may help reduce taxes imposed by more than one country.
International tax questions should be reviewed by qualified tax professionals familiar with both jurisdictions.
Trusts May Not Receive the Same Treatment Abroad
Trusts may be used in the United States to manage property and address estate-tax concerns. Examples include irrevocable life insurance trusts, charitable remainder trusts, and qualified personal residence trusts.
However, not every country recognizes trusts in the same way that the United States does. A trust that is valid and effective under US law may receive different legal or tax treatment abroad.
Before transferring foreign property to a US trust, an expatriate should confirm how the trust and transfer will be treated in the country where the property is located.
Renouncing US Citizenship Is Not a Routine Estate Planning Strategy
Some expatriates consider renouncing their US citizenship because of ongoing tax and reporting obligations.
Renunciation is an extreme and generally irreversible decision. It can also produce significant immigration, tax, and estate-planning consequences, including a possible expatriation tax.
It should not be treated as a simple method of avoiding double taxation. Anyone considering it should obtain individualized legal and tax advice before taking action.
Do Expatriates Need an International Will?
A will prepared solely with US law in mind may not adequately address property located in another country.
Someone who owns property only in the United States may be able to rely on a US will. An expatriate who owns foreign real estate, financial accounts, business interests, or other property may need an international will or separate wills for different jurisdictions.
Whether a foreign country will recognize a US will depends on that country’s laws, any applicable international conventions, the form of the will, and how the document was executed.
The Hague Form of Wills Convention
The Hague Convention on the Conflicts of Laws Relating to the Form of Testamentary Dispositions establishes rules for determining whether the form of a will should be recognized across participating countries.
Under the convention, a will may be formally valid if it complies with the law of one of several connected jurisdictions, such as the place where the person made the will or a country of the person’s nationality, domicile, or habitual residence.
The United States is not a party to this convention. However, the convention may still affect whether a will created by an American is recognized in a participating country.
The HCCH status table identifies the countries currently bound by the convention.
The Washington Convention and International Wills
The Washington Convention created a uniform form for an “international will.” A will that satisfies its requirements may be recognized as formally valid in jurisdictions that have adopted the convention’s rules.
In the United States, implementation depends on state law. Not every state has adopted the Uniform International Wills Act.
An international will is therefore not automatically valid everywhere. The person’s US state, country of residence, citizenship, property locations, and manner of execution must all be reviewed.
When Might an Expatriate Need More Than One Will?
Even when a single will could legally control property in multiple countries, using one document may not always be practical.
An executor may have to work with courts, financial institutions, attorneys, and government agencies in several jurisdictions. The process may become especially difficult when the property is located in a country with a different language or legal system.
Using a Situs Will for Foreign Property
In some cases, a person may use a primary US or international will together with a separate situs will. A situs will is designed to govern property located in one particular country.
For example, an American who owns a home in another country might have one will addressing US property and another addressing the foreign home.
Multiple wills must be drafted and coordinated carefully. A later will could unintentionally revoke an earlier one, or the documents could contain conflicting provisions.
Attorneys in each affected country should review the documents together.
Forced-Heirship Laws
A separate will may also be advisable when an expatriate owns property in a country with forced-heirship rules.
Forced heirship can restrict a person’s ability to decide who will receive certain property. These laws commonly reserve part of an estate for a surviving spouse, children, or other close relatives.
The specific rules differ by country. A foreign court may apply its forced-heirship laws to property located within that country even if the expatriate’s US will says something different.
An estate plan should identify which assets could be subject to forced heirship and whether local planning options are available.
Guardianship Planning for Expatriate Families
Parents of minor children face additional estate-planning questions when living abroad.
A will may name a US resident as guardian if both parents die. However, appointing a guardian who lives in another country can create practical and legal complications.
The children might need to move back to the United States. In addition, minor children may not be permitted to leave their country of residence until a legally recognized guardian has authority to travel with them.
Which Country Determines Guardianship?
Naming a guardian in a will expresses the parents’ preference, but it does not guarantee the appointment. The court with jurisdiction over the children will make the final decision under the applicable law.
For a family living overseas, a foreign court rather than a US court may have authority over the guardianship.
Expatriate parents should determine:
- Which country is likely to have jurisdiction
- Whether the proposed guardian can legally take custody of the children
- What immigration or travel restrictions could apply
- Whether a temporary guardian should be named locally
- How the children would travel to the permanent guardian
- Who should serve if the first-choice guardian is unavailable
If the parents have wills in more than one country, the guardianship provisions should be clear and consistent.
Powers of Attorney for Expatriates
Living abroad can make it difficult to handle transactions involving property or accounts in the United States. Financial and medical powers of attorney can help address these problems.
Financial Power of Attorney
An expatriate who retains US assets may need a trusted person who can conduct financial transactions while the expatriate is outside the country.
Some actions—including selling property, managing accounts, signing tax documents, or handling vehicle matters—may be difficult or impossible to complete remotely.
A financial power of attorney authorizes an agent to act on the expatriate’s behalf. The authority may be broad or limited to specific property or transactions.
A power of attorney should be prepared before it is needed. Financial institutions may also have their own acceptance procedures or forms.
Medical Power of Attorney
Financial authority does not give an agent the right to make healthcare decisions.
A medical power of attorney or advance directive allows a selected person to make medical decisions if the expatriate cannot communicate or decide independently.
A US healthcare document may not be recognized or practical to use in another country. An expatriate may need healthcare documents that comply with the laws of each country where they regularly reside.
The selected medical agent should also be someone who can realistically communicate with healthcare providers and respond during an emergency.
When Should an Expatriate Review an Estate Plan?
An estate plan should be reviewed before moving abroad whenever possible. It should also be reconsidered after any major change involving:
- Citizenship, domicile, or legal residence
- The purchase or sale of foreign property
- Marriage or divorce
- The birth or adoption of a child
- A change in the preferred guardian
- New foreign financial or business interests
- A move from one foreign country to another
- Changes to US or foreign tax laws
- The creation of a foreign or US trust
An expatriate should also confirm that trusted decision-makers know where the relevant documents are stored and whom to contact in each country.
Does Your Estate Plan Match Your International Lifestyle?
Whether you currently live overseas, plan to relocate, or want to invest in property outside the United States, you will need to adapt to new laws and legal systems.
Documents prepared only for a life in the United States may not adequately address foreign property, taxes, guardianship, incapacity, or estate administration. Conflicting documents can put your wealth and legacy at risk.
Careful international estate planning can help address the challenges of calling more than one country home. Because the laws differ, it may be necessary to work with experienced attorneys in every country where you live or own substantial assets.
We Can Help Review Your US Estate Plan
If you are an American living abroad, preparing to relocate, or purchasing foreign property, McDonald Law Firm can review the US portion of your estate plan and identify matters that may require advice from an attorney or tax professional in another country.
Attorney André O. McDonald assists clients in Howard County, Montgomery County, and the District of Columbia with estate planning, special needs planning, Medicaid planning, and related matters.
To schedule a consultation, call:
- Howard County: 443-741-1088
- Montgomery County: 301-941-7809
- District of Columbia: 202-640-2133
DISCLAIMER: THE INFORMATION POSTED ON THIS BLOG IS INTENDED FOR EDUCATIONAL PURPOSES ONLY AND IS NOT INTENDED TO CONVEY LEGAL, INSURANCE, OR TAX ADVICE.
