Last updated on March 26th, 2023 at 10:14 pm
Nobody likes to think about a health or an overseas emergency. And we definitely don’t want to talk about death. But like taxes, at least one of those is guaranteed. What may seem like a relatively simple matter in your home country can become increasingly complex depending on the state of your affairs (including family, finances and everything else) in your host country. Whether you are abroad now or will be, this needs to be part of your planned portfolio.
What is Estate Planning?
Estate planning is the formal process of designating what persons (or non-profits/charities) will receive your assets upon your death or incapacitation. However, estate planning is not only about wills and trusts.
The planning process also helps you appoint a power of attorney to make financial and administrative decisions on your behalf in the event of incapacity. Likewise, an advance healthcare directive (also known as a “healthcare power of attorney” or “living will”) can provide healthcare instructions to medical providers if an injury or illness leaves you unable to communicate.
Estate planning is important for all United States citizens — even those with minimal assets. It is also important for expats living abroad and individuals considering moving to another country. Even if you aren’t American, you should still have plans in place, regardless of your nationality. Ideally, you should get your legal documents in order before moving abroad.
Why Estate Planning is Important for Expats
Estate planning is important for expats for many of the same reasons it’s important for traditional residents. It can help you avoid a complicated probate process, minimize estate and gift taxes, and designate your heirs and beneficiaries. However, it can serve several other functions for individuals living abroad.
Designating Heirs in Multiple Countries. If you fail to create an estate plan before your death, your property will be governed by intestate and inheritance laws in the countries in which you have assets. These laws tend to identify and prioritize natural heirs and may not dispose of your property the way you would do it. An estate plan helps you make sure the right property goes to the right heirs.
Adjusting Your Plan for Relocation. Many expats create estate plans before moving abroad. However, some expats may not realize that relocating overseas can create wrinkles in their old plans. What might have been lawful planning in the U.S. may not be legal in the country of relocation. Likewise, international laws concerning inheritance may conflict with U.S. laws on the same topic.
Updating Your Plan To Account For Changes in the Law. Changes in U.S. tax law might render an estate plan ineffective. For example, current tax laws require an estate tax for estates that exceed $12.92 million. However, this amount changes each year, and the estate-tax exclusion may decrease in the near future — which could bring many estates under the exclusion threshold.
Routine estate planning provides you with an opportunity to plan for the future and account for changes in tax and inheritance law.
Disposing of Property in Multiple Countries
Expats often own property in multiple countries. A good estate plan can help you dispose of your assets in each location and ease the tax burdens associated with the devises. You might consider creating an international will that is effective in multiple countries. Alternatively, you could consider creating multiple wills to govern the disposition of property in each country.
International and Multi-Jurisdictional Wills
Many countries recognize the legal validity of international wills created by U.S. expats. Specifically, countries that are party to the Washington Convention will typically recognize a U.S. will as valid.
These countries include:United States of America, Canada, United Kingdom, France, Italy, Portugal, Belgium, Holy See, Russian Federation, Bosnia-Herzegovina & Croatia.
Likewise, many countries have signed on to the Hague Convention and will recognize wills executed in a foreign country if the will complies with the law of the foreign country.
An international will may sound convenient, but it can be tricky to get right. Many countries have inheritance laws that designate the heirs eligible to receive assets when a person dies. Known as “forced heirship,” these laws often require a fixed percentage of your assets to go to your spouse or children. If your international will conflicts with local inheritance laws, it will likely be invalid.
International wills can also have unforeseen tax implications. Some countries adjust inheritance tax rates according to the person receiving your assets, imposing a lower rate for your spouse and children and a higher rate for individuals with whom you share no relation.
Therefore, international wills are often impractical for most expats. However, you could create separate wills for each country in which you have assets.
Separate Wills
Having multiple wills may be the most effective way for you to dispose of your assets in different countries. Typically, an asset’s location determines what tax and inheritance laws it is subject to. For example, a chalet in Switzerland owned by a U.S. citizen living in Texas will typically be subject to Swiss inheritance and tax laws.
Therefore, you should consider creating a primary will to dispose of property in the country in which you live and “situs” wills to dispose of property in other jurisdictions. Creating “situs” wills may also allow you to minimize the tax impacts of your devises.
What Other Planning Documents Should Expats Have?
Although wills may seem like the most important planning document for expatriates, they are certainly not the only ones. You can empower an agent to make financial and administrative decisions on your behalf through a power of attorney. You can also create health care directives to enable an agent to make medical decisions on your behalf.
Power of Attorney
If you retain property or businesses in the United States, you can create a power of attorney to enable an agent to make financial decisions on your behalf while you are living abroad. A power of attorney allows you to designate what actions an agent may take on your behalf. These actions can range from paying bills and completing tax returns to managing investments and selling assets.
You can also give the agent specific instructions on how they must conduct themselves in the role, e.g., obtain your consent before a major decision, prepare accountings, etc. You can typically revoke the power of attorney at any time (assuming you’ve created a revocable power of attorney). This document can be extremely helpful if you need someone to manage your affairs stateside.
Health Care Directives
Many countries allow you to create health care directives that designate an agent to make medical decisions on your behalf in the event of an incapacity. These documents also detail your healthcare preferences to your medical providers.
Healthcare laws vary from country to country. Therefore, you should consider creating healthcare directives for your home country and your country of relocation.
How Expats Can Obtain The Right Estate Planning Documents
In the age of do-it-yourself, it may seem easy to create your own will or estate plan. However, this is not advisable if you are an expat living abroad. These documents can be extremely technical. One mistake could have major tax and inheritance implications for your loved ones.
You should talk to a local attorney to determine the best estate plan for your needs. You may need to consult an attorney in the United States and your country of relocation. Your attorney can solicit help from other professionals like CPAs to optimize your plan for tax and inheritance laws in both countries.
While this may seem like a hassle in the short run, it will ensure that your property in each country goes where it’s supposed to when you die. It will also save your loved ones time and potential headaches from a poor estate plan.