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Estate Planning Strategies: Cross-Border Pitfalls and Considerations

n 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.

Foreign tax credits in the absence of an estate tax treaty: In the absence of a treaty (the majority of jurisdictions), the potential for double taxation increases, but foreign transfer tax credits may still provide some relief from double taxation. The availability of a U.S. foreign tax credit will hinge upon:

  • Whether the property is situated in the foreign country;
  • Whether the property is subjected to transfer/death taxes;
  • Whether the property is properly included in the gross estate.

There is also the potential that a foreign transfer tax credit could be unavailable because of a Presidential proclamation based on the foreign country’s failure to provide a reciprocal tax credit to U.S. citizens. (For more information, please see the relevant portions of the U.S. Tax Code including 26 U.S. Code § 2014 “Credit for foreign death taxes”).Consider downloading the full .pdf of our 2018 Guide to International Estate Planning for Cross-Border Familie