In an increasingly interconnected world, attorneys must be capable of grappling with the complexities of international estate planning as more and more clients form ties across multiple jurisdictions. This overview highlights critical considerations attorneys should keep in mind when addressing the intricacies of cross-border estate planning.

ADDRESSING SCOPE OF DOCUMENTS AND WORKING WITH LOCAL COUNSEL

When a client owns assets in more than one country, it is important to work with local counsel to understand how the client’s United States-based estate plan may need to be adjusted (or what opportunities may be available to them) based on their international ties. For example, it may be prudent — and in some cases, crucial — to have a separate last will and testament in each jurisdiction pertaining to only the assets located within that jurisdiction. Similarly, a client may choose to have multiple trusts and more than one durable power of attorney. These preparations help avoid conflicts between the laws of each jurisdiction and ensure the client’s intentions are accurately given effect in each jurisdiction.

It is important these documents be clear about which assets they are intended to cover; for example, are they limited to only the client’s U.S. assets or, if appropriate under the circumstances, does it include all worldwide assets except those located in another specified country? This specificity ensures that documents do not inadvertently revoke one another and allows for coordination across jurisdictions to apportion and provide for payment of relevant taxes.

Of course, unless an attorney is licensed in all applicable jurisdictions, it is critical to work with local counsel in the other jurisdictions. In addition to concerns regarding unauthorized practice of law, local counsel is essential because different countries have different laws regarding inheritance (notably, freedom of disposition versus forced heirship and community property laws), vehicles used to accomplish estate planning goals (for example, with few exceptions, trusts are not recognized by civil-law countries),¹ and widely varying tax regimes, which we’ll discussed shortly.

Other advisors may be important; for example, unlike in the U.S., estate planners in many countries do not take an involved role in tax planning, instead relying on local tax counsel.

ESTATE AND GIFT TAX CONSIDERATIONS

In the United States, the unified credit against estate and gift tax has been at record highs in recent years, resulting in estate and gift taxes assessed to only the very wealthy. For example, the unified credit against estate and gift tax in 2024 is $13.61 million per person, with married couples allowed to pass double that amount free of estate and gift tax.² In addition, each person may give $18,000 per person per year in annual exclusion gifts to as many other individuals as desired without them counting towards the cumulative lifetime total.³ However, the ability to enjoy these exemptions and other tax benefits such as the deferral achieved by a marital deduction depends upon a number of considerations including, but not limited to, the individual’s citizenship and residency (which, for federal estate and gift tax purposes, is determined by domicile),⁴ the citizenship of the person’s spouse, where the person’s property is located, and the laws of any country where the person is a citizen, resident, or owns property. Accordingly, estate and gift tax considerations play a pivotal role in international estate planning.

Attorneys undertaking estate planning work for clients with international ties must be well-versed in U.S. transfer tax rules and either licensed in and well-versed in the tax rules of the other relevant jurisdictions or work with local counsel in those areas.⁵ Further, in many cases, treaties governing cross-border tax matters between the U.S. and other countries need to be considered.

Estate and gift taxes are imposed on all U.S. citizens and non-citizen residents (non-citizens whose domicile is in the U.S.).⁶ In most cases, a client’s domicile is clear, but there are cases in which further complexities must be considered. For example, a client may have dual citizenship or satisfy the criteria to be considered domiciled in both the U.S. and another country. However, because an individual can (and must) only have one domicile, reviewing the applicable treaty or treaties to conclusively resolve the question of domicile in these situations is critical.

The applicable treaty or treaties should also provide guidance on tax treatment for dual citizens, which is necessary for careful planning to optimize tax efficiency and avoid double taxation. In the a client owns assets in the U.S. but is neither a citizen or resident, they are generally still subject to federal estate taxes on the value of those assets.⁷ Here, too, it is important to consult the relevant treaty or treaties to determine what credits may be available to avoid double taxation.

Note that not all taxes arising from death are ones for which a treaty or treaties may provide relief from double taxation. For example, a jurisdiction in which death results in a deemed disposition of a capital asset may not have an estate tax, while in the U.S. we have a federal estate tax; however, beneficiaries receiving capital assets from a decedent generally enjoy a date of death step-up in the tax basis of those assets resulting in little to no capital gains. In these situations, though both taxes result from death, they are two different types of taxes and there may be no available offsetting credit. Similarly, in the U.S., the federal estate tax is paid before assets are distributed to beneficiaries; other jurisdictions may impose an inheritance tax paid by beneficiaries upon receiving the assets. These, too, are considered different types of taxes for which there may be no available treaty relief.⁸

For federal estate tax purposes, U.S. residents enjoy the same unified credit against estate and gift taxes⁹ and annual exclusion for ifts of a present interest¹⁰ as U.S. citizens. However, while assets left by a non-citizen spouse to a surviving citizen spouse qualify for the unlimited marital deduction for federal estate taxes as long as they satisfy the requirements of Section 2056 of the Internal Revenue Code, this does not work in the other direction — assets left to a surviving non-citizen spouse regardless of residency do not qualify for the unlimited marital deduction.

Similar rules apply to lifetime gift transfers between citizen and non-citizen spouses. In situations where a citizen spouse leaves assets for a non-citizen spouse, a qualified domestic trust (QDT) can be used to qualify transfers exceeding the unified credit for the unlimited marital deduction and defer federal estate taxes until distributions are made.¹¹ The QDT, which can be created while both spouses are living or after the first death,¹² must meet all criteria generally applicable to a marital deduction trust under IRC 2056, must have a U.S. trustee,¹³ must provide the trustee with the right to withhold federal estate tax due on any distribution of trust principal,¹⁴ and must meet requirements the secretary may prescribe by regulation.¹⁵ The executor of the deceased spouse’s estate must also make an irrevocable election on the deceased spouse’s U.S. estate tax return to qualify the trust property for the marital deduction.¹⁶

FOREIGN TRUST STATUS

The citizenship and residency of trustees must also be paid considerably more attention when clients have international ties. Inadvertent foreign trust status arises when a trustee is not considered to be a U.S. person¹⁷ which, in turn, depends in part upon whether a trustee or other person having substantial decision-making authority over the trust (such as a trust director) is considered a U.S. person. Certain implications may arise if a trust is deemed foreign, including additional reporting requirements and tax liabilities. While there are situations in which foreign trusts are purposefully created, inadvertent foreign trust status is generally undesirable. Careful planning and drafting of trustee succession and the authority to make substantial decisions can avoid triggering foreign trust status when it is not intended.

INCOME TAX CONSIDERATIONS

Income tax planning is an important part of any comprehensive estate plan but is more complex when international ties are involved. Familiarity with U.S. income tax rules — including the extent to which they apply to the client based on citizenship, residency, location of assets, etc. — working with local counsel to advise on the income tax regimes in other jurisdictions, and reviewing applicable income tax treaties are paramount.¹⁸

Like with U.S. transfer tax rules, both U.S. citizens and residents are subject to federal income taxes on worldwide income. For U.S. federal income tax purposes, residency can be established by being a lawful permanent resident or meeting the criteria of the substantial presence test.¹⁹ It is important to note, however, that residency for federal income tax purposes is not necessarily the same as residency for federal estate tax purposes; it is possible to be a U.S. resident for federal income tax purposes and not be a U.S. resident for federal estate tax purposes.²⁰

ADDITIONAL FOREIGN TAX CONCERNS

The transfer of foreign capital assets to a U.S. revocable trust can cause a deemed disposition of the asset for purposes of capital gains tax in another jurisdiction, even common-law countries that recognize trusts. Other potential effects include higher income tax rates, further deemed dispositions and the resulting capital gains taxes in future years on capital assets owned by the U.S. revocable trust, and, in the case of real estate, transfer taxes. These rules vary among jurisdictions and local counsel is best positioned to advise on such rules, their nuances, and exceptions.

OTHER CONSIDERATIONS

In addition to substantive legal analysis and drafting in the relevant jurisdiction, local counsel is invaluable to understanding local customs and cultural considerations. However, because terminology may have different meanings across jurisdictions — as it sometimes does even within different bodies of law within the same jurisdiction — increased attention and specificity may be needed to ensure mutual understanding.

Navigating international estate planning requires a nuanced understanding of how local laws and the U.S. tax code apply to U.S. citizens, residents, and non-residents, and how international ties can affect the drafting and implementation of different estate planning documents. While the considerations included here do not constitute an exhaustive list, being aware of these often-complex issues can equip attorneys to face the unique challenges involved with estate planning for clients with international ties and provide comprehensive guidance to clients seeking to create a robust and effective international estate plan.