If you own assets in the U.S. or are considering investing here, it’s important to have a plan for what would happen to that investment if you pass away or become incapacitated. Without proper planning, your loved ones may face a bureaucratic nightmare to access the assets, and they may be stuck with a draconian tax bill.
We help foreign investors structure their assets to make things easy for your loved ones and minimize the amount of taxes that your family would have to pay both in the U.S. and your home country.
Avoiding the U.S. Court System
If you pass away, your investments in the U.S. may be frozen until a court authorizes someone to access and distribute the assets in a process called probate. Probate is a legal proceeding that can be costly and burdensome for your loved ones and result in lengthy delays – sometimes well over a year. While probate can be challenging even for purely domestic proceedings, it is further complicated where international issues are involved.
In order to ensure that your loved ones are able to access your assets when you’re gone, you may wish to set up a Revocable Living Trust. A Revocable Living Trust is a tool that is used to avoid the probate process. This makes it far quicker and easier for your loved ones to access the U.S. assets.
You may also want to put in place a Power of Attorney. A Power of Attorney can ensure that your loved ones can manage the assets if you become incapacitated.
To ensure your U.S. assets would be accessible to your loved ones if something happens to you, contact us to see how we can help.
Minimizing Taxes
Before embarking on any U.S. investment, it’s important to understand not only the income tax implications, but also the taxes that will be imposed upon transferring the U.S. asset to a family member during your life or upon your death. Failing to consider the impact of gift and estate taxes on your investment can leave your loved ones with a large, unexpected tax bill.
Gift & Estate Tax Rules for Non-U.S. Residents
For non-U.S. residents, the U.S. gift and estate tax is imposed on the transfer of assets that are based in the U.S. For example, estate taxes would apply to stock you own in U.S. corporations and any U.S. real estate you own.
The estate tax exemption for non-residents is a mere $60,000, and there is a more limited exemption for the gift tax. Any amount over the exemption is taxed at 40%. So if you own a home worth $500,000 in the U.S., your family would owe $176,000 in taxes if you died.
Gift & Estate Tax Treaties
The harsh consequences of U.S. estate taxes on non-U.S. persons can sometimes be mitigated by an estate tax treaty. The U.S. has estate tax treaties with the following countries:
Australia*
Finland
Ireland
Norway
Austria*
France*
Italy
South Africa
Canada
Germany*
Japan*
Switzerland
Denmark*
Greece
Netherlands
UK*
* Indicates that treaty includes gift tax provisions.
The treaties can vary widely with respect to the type and extent of relief they provide. Some will modify what is considered a U.S. asset for U.S. estate tax purposes, while others dramatically increase the estate tax exemption for residents of the treaty country.
Estate Tax Planning Strategies for Non-US Residents
Given the potentially harsh impact of the U.S. estate tax on foreign investors, it is recommended that you consult with a lawyer or tax advisor prior to purchasing U.S. real estate, opening a U.S. brokerage account, or making any other investment in the U.S. If you already own U.S. assets, consult with a tax professional as soon as possible to prevent a hefty tax on your family.
Strategies that non-residents can use to blunt the impact of the gift and estate tax include purchasing a property or investment through a foreign corporation or through an irrevocable trust. Strategies for eliminating estate taxes have certain tradeoffs: most notably, the investor’s ability to benefit from the U.S. assets is severely restricted. A U.S. lawyer experienced in this area of law can walk you through pros and cons of the various options to determine the best strategy for you and your family.
