Estate Planning for Expatriates

The United States hosts the highest number of immigrants in the world, but increasingly, Americans are considering relocating permanently to another country. A large percentage of wealthy Americans are also interested in buying real estate overseas and living there at least part-time.

Moving overseas is a lifestyle decision, but the practical implications of living abroad, including taxation and estate planning issues, cannot be ignored. Escaping Uncle Sam is not as easy as hopping on a plane to a far-flung location. Americans living overseas retain financial obligations to the US government.

Expatriates who live and own assets (accounts and property) in more than one country need an estate plan that reflects their international life. This may require working with estate planning attorneys in each country where they have assets.

Living Abroad and Double Taxation

As a US citizen, you continue to have a responsibility to pay taxes to the IRS. This can result in double taxation, taxes due to the US and to a second country.

Double taxation means that US citizens living abroad could end up paying income tax twice on the same income—once to their home country and once to their host country. Double taxation may apply to estate taxes as well.

Foreign assets are subject to US estate taxes, so any property an American citizen owns overseas is subject to this tax if their estate is worth more than the exemption amount ($13.61 million in 2024).

In addition to federal estate tax, some states also impose an estate tax or inheritance tax. The State of Minnesota will continue to impose their estate tax so long as you have property here. While St. Paul does not tax your worldwide assets, the exemption amount lowers depending on your worldwide wealth. Estate assets held in another country might additionally be taxed under that country’s laws.

There are a few ways expatriates can avoid US double estate taxation. The most extreme way is to renounce US citizenship. Another option is to take advantage of the foreign death tax credit, which allows expats with property located in a foreign country to claim a credit on estate, inheritance, legacy, or inheritance tax paid to a foreign government.

Trusts can also reduce estate tax liabilities. Different types of trusts can be used for this purpose, including irrevocable life insurance trusts, charitable remainder trusts, and qualified personal residence trusts.

However, some countries do not recognize trusts. A trust set up in the United States may not be valid in those countries and surprising legal implications can arise in that country.

US Expats and International Wills

An estate plan written with US laws in mind may not be legally valid for American citizens living abroad. Depending on the country where the expat resides, it may be necessary to have multiple wills or an international will.

An international will is designed for use in more than one country and was established by an International Will Convention. This agreement creates a uniform law on the recognition of an international will. Participating nations generally recognize a US will if it conforms to the International Will Statute, which requires that wills include special language and follow specific execution requirements. Around a dozen countries, including the United States have adopted the Washington Convention. Importantly, the State of Minnesota has incorporated the provisions into state statute, which require additional signing requirements. However, unless an expat’s state of residence has signed on to the convention, their international will may not be considered valid in their host country.

Even if a single will is recognized in both countries, there may be unintended consequences due to differing laws and may be impractical for your loved ones to use across multiple jurisdictions. It may be particularly difficult to administer assets located in non-English speaking countries. In such cases, a primary will, either a US will or international will, could be combined with a separate will used for assets specifically in that country alone to control asset distribution.

Surprising Laws

In addition to non-recognition of trusts or wills, other countries can have laws that don’t exist in the United States. Some countries have forced heirship rules. Residents of jurisdictions that have these rules may have restrictions on whom they give their assets to and how much each person may receive. Forced heirship rules vary by jurisdiction but typically force a portion of estate assets to be passed to reserved heirs. This includes spouses (similar to some rules in the US) but significantly also descendants. Foreign and US courts may apply forced heirship laws to portions of an estate.

Guardianship and Power of Attorney for Expats

Living overseas can create legal complications that are best addressed in an estate plan.

For example, the parents of minor children living overseas may have a guardianship provision in their will that names a US resident as guardian in the event that both parents pass away. This will require more in-depth planning, and an understanding of which laws will apply to the guardianship of your children. If the guardian is not a resident of the country where the children live, though, the children might have to be moved back to the United States. Additionally, without a legally recognized guardian accompanying them, minor children cannot typically leave the country in which they reside. Alternatively, a person in the host country could be named as a guardian in the will. Estate plans should name backup guardians to supplement the first-choice guardian.

Regardless of whom the parents nominate, the local court and laws determine who will take care of the children. For families living abroad, a local court, not a US court, could have authority over the matter. Expat parents should understand which laws apply to guardianship issues and ensure that, if there are multiple wills effective in different countries, guardianship provisions are clear and do not conflict.

Other estate planning considerations for expats include financial and medical powers of attorney.

• Financial Power of Attorney. Expats who retain US assets need somebody who can perform financial transactions for them while they are out of the country. Actions like selling property, opening and closing accounts, and registering vehicles cannot always be done remotely. Giving a trusted person a power of attorney lets them transact on an expat’s behalf.
• Health Care Directive. Incapacitation raises healthcare questions that can be addressed through a health care directive, which authorizes an agent to make medical decisions on another’s behalf. It can make sense to name a medical power of attorney in each country where an expat spends time.

Does Your Estate Plan Match Your International Lifestyle?

Whether you are living overseas currently, have plans to relocate to a foreign country, or just want to invest in property outside the United States, you will have to adapt to a new culture and new laws, including laws that affect taxation and estate planning. Your US estate plan documents may be inadequate to deal with legal questions raised by expat life, putting your wealth and legacy at risk.

Careful international estate planning can help address the challenges of calling more than one country home. Due to differences in laws, it may be necessary to work with experienced attorneys in each country.

If you are an American abroad or live here and have assets abroad, we recommend meeting with attorneys who have experience in these issues to see if your estate plan reflects your current circumstances. At Wagner Oehler, our attorneys are able to guide you through these complicated issues.

To learn more about estate planning, keep an eye on our Events page located at: https://www.wagnerlegalmn.com/events/.

If you’re ready to start being proactive about your estate plan, contact us to get started.

Want to stay informed? Subscribe to our quarterly newsletter for updates.