The United States has more immigrants than any other country in the world. With more than 45 million living inside its borders. While many of these people have become citizens, a significant number of non-citizen residents might not plan to stay in the country long-term. Regardless of their differences, any foreign-born person living in the United States could profit from having an estate plan. The specific difficulties that may arise when implementing the state international estate planning for non-resident aliens are the focus of this article.
State the International estate planning for non-resident aliens
Cross-Border Estate Issues’ Complexity for international estate planning
Many laws differ from one country to another. The tax code and property transfers frequently contain these conflicting laws. When it comes time to probate an estate, there could be more issues the more property there is dispersed across international borders.
Civil law versus common law jurisdictions
Most nations have either a common law or a civil law jurisdictional system. This distinction is crucial because, depending on the method used in a person’s home country, their right to inherit and their estate planning options may change.
The U.S. and the United Kingdom are the two countries with the most common law systems. The common law is primarily composed of judicial decisions made by various courts. Other nations, such as Germany or France, adhere to the civil law system. The majority of the law in a civil law system is contained in statutes. These statutes are longer and more detailed than those in common-law nations, leaving little room for judicial interpretation.
These two systems differ significantly in other significant ways that affect estate planning. For example, while most common law jurisdictions permit people to create legal trusts to hold their assets, many civil law nations do not. If they have assets located abroad, this may limit their options and make the non-citizen estate planning process more difficult.
Dealing With Wills and Trusts International estate planning
The same resources American citizens use in estate planning will be available to many non-citizens. When deciding whether to create a trust or a will, there are a few crucial factors to consider, especially for someone who might eventually return to their native country. Not all estate plans made in the United States will be transferable to other countries due to the distinctions between the civil and common law systems.
The biggest challenge for citizens of nations with a civil law system is that these nations frequently do not recognize trusts. If the documentation tries to include property located in a civil law nation, an estate plan that relies on beliefs may end up in shambles.
Estate planning presents a significant challenge because a will written in America might not be recognized in another nation. Making multiple wills is one way to get around this. During this process, extreme care should be taken to ensure that no one will accidentally revoke another or contain incompatible provisions.
The creation of an international will is an additional choice for foreign residents. Only Americans with other assets and real estate in a nation that has passed the Uniform International Will Act are eligible to use this type of will. A single choice may be enforceable in multiple countries under this law if all of them have signed the Uniform International Will Act.
Tax implications for state international estate planning for non-resident aliens
One of the most significant difficulties non-resident aliens encounter when planning their estates is dealing with tax issues. In addition to any income taxes they may owe, non-resident aliens are subject to onerous gift and estate tax requirements. The good news is that the adverse effects that non-resident aliens may experience can minimize with careful planning.
Estate Tax Exemption Caps for international estate planning for non-resident aliens
The limited estate tax exemptions that foreign nationals are entitled to are one of the most crucial factors for those with assets or investments in the U.S. The income tax repercussions of living abroad may be well known to many non-citizens, but not everyone is knowledgeable about the U.S. estate tax and its associated exemptions. The vast majority of estates are exempt from the estate tax means that most people won’t have to deal with estate tax issues in their lifetimes, so this shouldn’t come as a surprise. This exemption amounts to $11.7 million for 2021. In other words, no transfer tax will assess an estate valued at less than $11.7 million.
These exemptions are not as generous for non-resident aliens, who only get a $60,000 estate tax exemption. As a result, most foreign national investments are in the United States. As a result, they will be subject to transfer taxes when they pass away. Any heirs could suffer significantly from these transfer taxes, especially if the investments in question involve real estate.
The good news is that some foreign residents may be eligible for relief depending on their country of origin. More than a dozen nations, including Canada, Switzerland, and the United Kingdom. They have agreements with the United States that shield their citizens from this high tax rate.
Guardians Of Minor Children
Care for minor children if a parent passes away or becomes incapable of caring for them—the most crucial decision taken during estate planning. Many foreign residents would naturally prefer this. In these situations, for a family member in their home country to assume custody of a minor child. This is especially true for people who don’t have family in the United States on which to rely.
They are nominating a temporary guardian to look after the child. Until the permanent foreign guardian gets to the country is one way to solve these problems. Then, without moving the child, a temporary guardian who lives nearby could take the child immediately.
Expert counsel is crucial when assets span multiple jurisdictions. Family members have to deal with various legal systems and frequently travel to a foreign countries. To prove their rightful share of an estate, they will have to experience tremendous stress due to unplanned international estate planning involving multiple assets or beneficiaries in various countries. This stress will be both financially and emotionally devastating.