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Gifts/Inheritances from Foreigners

A Brief Overview of Contrasting International Transfer Tax Regimes

Common law vs. civil law foundations:  While the estate tax laws of different U.S. states may have critical differences (e.g., the recognition and/or treatment of community property), these differences are subtle in comparison to the international landscape. This is partially because all (save Louisiana) states share the same legal foundation: English common law. On the other hand, the majority of European, Latin American, and African nations have civil law systems. Broadly speaking, civil law systems are based on Roman law, and statutes tend to be longer, more-detailed, and leave far less discretion or interpretative influence to the courts. In contrast, common law systems tend to have more concise constitutions and statutes and afford more discretion and interpretive power to the courts when applying the laws to the particular facts and circumstances of particular cases.

Substantial planning flexibility in common law regimes:  In the estate planning context, common law jurisdictions typically afford much more discretion to the individual (the settlor) to design a scheme of distribution to those people or institutions (heirs) to whom the individual desires to pass on her wealth before or after death. Wills are the common method of establishing a blue-print of specific instructions for passing (bequeathing) wealth to others (spouses, descendants, friends, charities, etc.) through the probate system. Trusts are a primary method of devising a scheme of distribution that may allow some or all of the decedent’s assets to bypass probate, and (sometimes) to defer or avoid estate taxation. In common law jurisdictions, it is usually the estate of the decedent that is taxed prior to distribution of wealth to chosen heirs. If the decedent fails to construct a legally valid will (a situation known as intestacy), trust or other will-substitute scheme (e.g., joint titling all property), the state intestacy laws will direct the distribution of the decedent’s property.