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Cross-Border Issues that Amplify the Complexity of Estate Tax Planning

Examples of Estate Planning Tools that May Not Travel Well

Perhaps one of the more dangerous routes that an expat family could take would be to rely upon the estate planning that was done before leaving the United States. It is generally advisable to review an existing estate plan (and the broader financial plan) when major events (divorce, remarriage, etc.) have resulted in changed circumstances, but the importance increases with a relocation overseas, or a move from one foreign country to another. U.S. expats need to be aware that standard U.S. estate planning techniques will likely fail to protect wealth in cross-border situations and may even produce unintended, counter-productive results.

These are issues that extend beyond the scope of this guide, but certain issues can be discussed to illustrate the nuances involved in cross-border estate planning. As the fact patterns (citizenship, domicile residency, marital history, assets, etc.) of the global family change, so will the tax implications and the available solutions.

Utilizing wills in international estate planning: Naturally, the will is one of the more common and widely utilized estate planning tools in the United States. A traditional will provides written directions on how the individual (the “testator” of the will) wishes to distribute her assets upon her death. While different states have specific legal requirements for executing a will with legal effect, generally the requirements are straightforward:

  • That the testator be legally competent and not under undue influence;
  • That the will describe the property to be dis-tributed;
  • That the will be witnessed by the requisite number of witnesses.

In addition to testamentary wills, living wills (powers of attorney) are also utilized to direct who can make decisions for the individual in the event of physical or mental incapacity. The complexity and sophistication of traditional and living wills varies greatly, and any individuals with estates that may approach the levels that trigger any transfer taxes (which may be substantially lower in many foreign countries), or anyone who wants to make sure that their wishes are given legal effect, would be well advised to seek legal counsel regarding the drafting and execution of their will.

Within the cross-border context, individuals would be wise to seek legal counsel with a specialized focus on estate planning in the relevant jurisdictions. Some experts on the subject of international estate planning suggest multiple “situs” wills, with each will governing the distribution of property in the country for which the will is executed. There seems to be some risk in a strategy of multiple wills, as the traditional rule holds that the legal execution of a will extinguishes the validity of any property has situs in both (or even in neither) country.