There are four big picture issues with estate planning (1) end of life/ medical; (2) who gets your stuff; (3) tax issues; and (4) who takes care of your kids, parents or others you care for. These four issues apply to everyone.
With multinational families, the main complexity in addressing these issues is that you have four sets of laws that might be relevant: (1) the laws of the country where you are a citizen; (2) the laws of the country where you reside; (3) the laws of the country where you own stuff; and (4) the laws of the countries where your beneficiaries reside. These are four separate bodies of law that might not play well together, or that might be modified by treaties. The scrambling of applicable jurisdictions, as well as the legal gaps and overlaps, can either work for your advantage, or conspire to create a significant headache for you or your heirs.
Most people in multinational families don’t even know where to begin in terms of thinking about estate planning issues, and during my time practicing law in this area for nearly 20 years, I never came across much comprehensive guidance, either. And so, I have done my best attempt at a basic outline to highlight some of the issues that I’d guess are most likely to crop up for multinational families.
(A) Medical/ End of Life Issues:
(1) If you become incapacitated, who would you want to make medical decisions on your behalf? In the USA, you can use a document called a “Power of Attorney for Healthcare” or a “Healthcare Proxy” (these are the same documents, different names). The country where you reside (as opposed to the country where you hold citizenship) is the country where this document is probably going to be most relevant. If you are a citizen of the USA but reside abroad, a Healthcare Proxy from the USA might not be relevant, and you may have to see whether your country of residence has a similar type of document.
(2) Under what circumstances would you want the doctors to pull the plug? You can make these decisions in a document called a “Living Will” or “Healthcare Directive.” The country where you reside is the country where this document is relevant; it likely will not have to do with your citizenship.
(3) If you are incapacitated, who manages your assets? You can formally appoint someone to manage your assets for you in one of three ways… and there is one extra, informal, way to do that as well. If you are a legally competent adult, it probably doesn’t matter where you reside or where you hold citizenship; the rules for appointing persons to manage your assets will probably be based on where your assets are located. Ie. If you are a US citizen who resides in France with a brokerage account in Switzerland – Swiss law will likely govern how and by whom the assets will be managed. The rules for assets belonging to minors, however, can be different, and a court where the minor resides may (or may not) take jurisdiction over the minor’s assets REGARDLESS of where the assets are held.
(i) First, you (or more likely, your agent or family members) can petition a court to become your legal guardian. In the USA, there are proceedings to appoint a so-called “guardian-ad-litem” for incapacitated, or very young, beneficiaries. This is a time-consuming, costly process, and in a cross border situation, I imagine the complexity and delays would be inordinate.
(ii) Second, you can use a “power of attorney” (not the same as the healthcare power of attorney) that spells out what your “attorney-in-fact” (does not need to be an attorney, but can be anyone) can do in terms of paying your bills, investing your money, etc.
(iii) Third, you can put your assets into a TRUST for your own benefit, and appoint someone to be your Trustee or your co-Trustee. What is a trust? A trust is simply a way of conveying assets from one person to another, but with a time delay (the other person doesn’t get the stuff immediately) and where someone is managing the trust assets during the time delay. For example, I can give money to my uncle and say “invest this money and give my wife the income for her entire life, and then give whatever is leftover to my kid.” That transfer of money to my uncle for my wife and kid’s benefit is a trust. I can make the trust “revocable” – which means I can cancel it and take the money back, or “irrevocable” which means I no longer can cancel the trust and take back the money. With that background, suppose you create a revocable trust where you are the only beneficiary during your lifetime, and after you die, whatever is left over goes to your beneficiaries. In the USA, you can act as the trustee of that trust, and you can name a co-trustee who has the power to distribute trust assets to you or on your behalf if you are unable to do so yourself. This can be a useful way to make sure your bills get paid. I will talk more about trusts later.
(iv) A fourth, informal method: Have someone as a co-signor to your bank accounts and brokerage accounts. If you get sick, they will already have the power to pay your bills for you, without having to wait for approval from a judge. Beware that as a co-signor, they may have to effectively treat the account as their own, for tax purposes. Normally, that’s not a problem if the co-signor is a spouse, but can be a problem if the co-signor is someone else like a friend or parent. For USA people – if you have a foreign bank account, and you appoint a family member in the USA as a co-signor, watch out – they will have to disclose their potential control over a foreign financial account when they file their taxes… even if you and they do not consider or treat the money as “theirs”. And if you (or they) have enough money to have estate tax issues, then don’t do this until you talk to your tax advisor about estate tax and other issues.
(B) Giving Away Your Stuff.
There are three basic ways to give away your stuff when you die:
(1) A Will – this is a document that says who gets what, subject to what conditions, when you die. It is a court document, which means it must be filed with a court (meaning it goes through “probate”) after you die. Usually, the court where the Will gets filed is the court located in the jurisdiction where you reside. It is not necessarily the court in whatever country you have citizenship. The main issues in terms of picking what court gets to review your Will are: (i) where you normally reside; (ii) where your assets are physically located; and potentially (iii) where the people you appoint to manage your estate usually reside. Probate can take 9 months or even longer in the USA, and can take much longer (decades, even) if there is litigation involved. If you are a multi-jurisdictional person, it is a very good goal to try to REDUCE the number of courts where you need to file a Will. Multiple court proceedings across the planet isn’t something you want to leave your beneficiaries if you can help it.
(2) A revocable lifetime trust – this is a document that you can set up that says “I get to use the trust property for my life, and when I die, it goes to XYZ.” Revocable trusts can be used to avoid probate, which means they can be a way to give away your stuff when you die without anyone having to hire an attorney or go through a court. This seems like a pretty useful tool for multijurisdictional. If trusts are not recognized in the country where you live, you could consider moving your assets to the USA or another place where trusts are legally recognized.
What is the difference between a Trust and Will? Think of a trust as a sort of basket a wide variety of assets. You can put some or most of your assets into this basket, and the trust agreement will specify what happens to those assets while you are alive and after you die, who gets what, when they get it, etc. There is a good chance that not all your assets can get transferred to a revocable trust – a car, for example. If not, you will still need a Will to deal with whatever assets are not in the trust. In other words, the trust deals with whatever is “in the basket”, the Will catches everything else that doesn’t (or can’t) make it into the basket.
(3) Beneficiary designations: If you have a brokerage account, or retirement account, for example, you can often sign a document at the brokerage firm that says what happens to the brokerage or retirement assets when you die. You can name someone as your beneficiary, and when you die, the beneficiary presents your death certificate to the broker, and the account is automatically re-assigned to the beneficiary. This happens without a court approval, so it is often quicker than using a Will. You can name individuals (like a spouse, friend, family member) under a beneficiary designation, or you can create a trust for one or more people, and name the TRUST as the beneficiary. Be careful with retirement accounts and beneficiary designations. If you name a trust as a beneficiary of your IRA account, you can lose income tax benefits that would apply if you named an individual as the beneficiary.
(4) Co-signor rules on accounts: in some, but not all, countries, you can open a joint account with someone else (or a number of other people, even) and when you die, they just automatically get the assets, or a share of the assets depending on the applicable rules in the jurisdiction where the account is located.
Not all countries have beneficiary designations, or co-signor rules. What is described above applies to the USA, but may give some indication of what to ask about when doing planning in other countries.
(5) In terms of giving away your stuff, the main issues to consider:
(i) Who do you want to get your stuff?
(ii) Are any of the people who get your stuff under any sort of disability, or maybe too young to manage money? If so, should someone manage their inheritances on their behalf? If so, for how long, or until when? And who should the manager be? What about a back-up manager in case the first one dies, flakes out, goes bonkers or wants to quit?
(iii) What conditions do you want for anyone who inherits your assets? For example, if you leave a mutual fund to a beneficiary, do you want the beneficiary to only get the income from the fund, or be able to get the capital as well?
(iv) What if you want to give the same thing to multiple people? For example, you have two kids, and you don’t know which of them will have the highest expenses after you die? Should you leave assets in a trust for BOTH children, where the trustee gets to decide what level of distributions to make to which child depending on their different needs?
(v) What if one of more of your beneficiaries doesn’t survive you? I find it helpful to use a decision tree, which says “when I die, X and Y get my stuff. If X outlives me but Y doesn’t, WHAT HAPPENS? If Y outlives me but X doesn’t, WHAT HAPPENS? If both X and Y don’t survive me, WHAT HAPPENS? By seeing a decision tree, I can visualize each logical outcome, and say what happens. That way, I can make sure I have addressed all the likely contingencies.
(vi) If you leave assets to a beneficiary in trust after you die, what happens if the beneficiary dies while the trust is still in effect? Here is an example. I leave assets to my kid in trust until he is 21 years old. When he is 21, he gets the trust assets outright. What happens if he dies before 21? Who gets the trust assets then?
(vii) Some countries have forced heirship laws – when you die, you MUST give some or all of your stuff to designated persons (like a spouse or children). The USA generally does not (except in Puerto Rico, Louisiana), but some states require you to leave at least some minimal amount to a spouse.
(C) Tax issues:
(1) Estate taxes – these are taxes on your right to give assets away when you die. For example, if I give $100 in cash to my kid under my Will, I may be liable for estate tax on $100. Since nobody can take their stuff with them when they die, estate tax generally applies to everything they own or have lots of control over at the time of their death. For example, if I have a right to withdraw an unlimited amount from my brother’s bank account at the time of my death, my brother’s entire bank account could be brought into my taxable estate.
Each country has its own estate tax rules. Some countries have estate taxes, others do not. In the USA, some States have their own separate estate taxes, which are in addition to Federal estate tax, and potentially subject to different rules, rates, exclusion amounts and tax credits.
The USA imposes estate taxes in three situations: (1) you are a USA citizen (and it doesn’t matter where you live, could be in the USA, or outside the USA); (2) you are a full-time resident of the USA (applies whether you are a citizen or not); or (3) you have certain types of assets (like an apartment) located in the USA – the estate tax would apply to your apartment regardless of whether you are a USA citizen and regardless of where you currently reside. If you don’t fit into one of these three situations, you’re probably off the hook. The USA is weird when it comes to taxes – most countries don’t nail non-resident citizens with estate taxes, but the USA does.
There are exclusions from estate tax. A citizen can give around $5.5m away free of gift and estate tax to anyone. Bequests (which mean gifts that take effect on your death) to spouses and charities are usually exempt from estate tax.
USA citizens who reside abroad need to consider tax rules in the USA and also in the country where they live or own property. Non-citizens may need to consider USA estate taxes if they reside in the USA or own property there.
To top it all off, persons who are liable for USA estate tax need to consider applicable estate tax treaties, which can modify or over-ride USA estate tax rules (or modify or over-ride estate tax rules in other jurisdictions where the person owns stuff or resides).
(2) Inheritance taxes – these are taxes on beneficiaries who receive property from an estate. They are different from estate taxes (which are taxes on the right to give away, as opposed to receive, the property). There can be both estate AND inheritance taxes. The Federal government of the USA has no inheritance tax. Some states do. Inheritance tax is often (but not always) a matter of where the beneficiary resides. Sometimes, the inheritance tax applies only to certain types of beneficiaries – such as beneficiaries who are not related to you – but doesn’t apply if the beneficiary is a spouse, children, parents, etc. Multijurisdictional people potentially have to consider the inheritance tax rules where (1) they personally reside; (2) where their property is located; and (3) where the beneficiary resides.
(3) Gift taxes – these are taxes on your right to give away property during your lifetime. They are usually designed to prevent people from evading estate taxes by simply giving away their stuff while they are lying on their deathbed. That is the main reason why the same rules for estate tax and gift tax normally apply – for example, there might be the same exclusions, same rate of tax, etc. If you don’t give away your stuff while you are alive, gift taxes are generally a non-issue.
(4) Stamp duties, transfer taxes. The Federal government of USA doesn’t have these. Other countries sometimes do. These are generally small taxes that apply when you transfer money or other assets from one person to the next. They can be as low as 50 cents, or as high as 5% of the value of the assets in question – that’s just what I have seen but the numbers could go wildly higher as far as I know. For multinational people, before you plan to give money or property to a beneficiary, ask whether the beneficiary will be liable for a large stamp duty or comparable type of tax or fee. That can be particularly true in Europe.
(5) Wealth taxes – these are taxes on a percentage of a person’s wealth. They don’t exist in the USA, but DO exist in many parts of Europe. The question here is, what is “wealth?” If I give a beneficiary $1,000,000 and the beneficiary lives in Spain, that beneficiary may be liable for annual wealth taxes on that $1,000,000. If I took that $1,000,000 and put it into a trust for the beneficiary and said that the Trustee can give the beneficiary all the trust income, the entire $1,000,000 of trust capital might NOT be treated as the beneficiary’s “wealth” for wealth tax purposes. For international people, you have to think about where the beneficiary lives and whether you can avoid wealth taxes by giving them your stuff outright or to put that stuff into a trust for their benefit instead.
(6) Income taxes. When you are talking about estate planning, the big income tax issues are normally:
(i) Do your beneficiaries pay income tax on the bequests you give them? Will YOU pay income tax on bequests that you get from someone else, like a spouse or parent? In the USA, the single greatest income tax benefit that exists: nobody pays income tax on gifts or bequests. I could give a USA taxpayer $1,000,000,000,000 and how much income tax would they pay on that? Zero. This is important for USA citizens and residents, who are generally liable for USA income tax on all of their income.
(ii) What about income taxes for other beneficiaries who don’t live in the USA or have residence there? You have to think about the income taxes for countries where the beneficiaries are citizens or residents. If your beneficiary is a USA citizen AND resides abroad, you have to think about their income tax obligations in BOTH the USA and in their country of residence.
(7) Taxes and weird rules for retirement accounts – these generally are accounts where you can stick assets and allow them to accumulate in value for a time, and where you don’t owe income taxes on the assets until a certain retirement date. The big tax benefit of these accounts is deferring your income tax liability until the future (the tax benefit equals the time value of money from now until the date when tax is due). In the USA, you can give retirement accounts away when you die, and the beneficiary can defer income tax on the account assets over their life expectancy…. Unless you screw something up. Not screwing that up is a tax issue worth thinking about.
(8) Capital gains taxes and special rules: What if you have a huge capital gain on an investment when you die? In the USA, that capital gain is basically forgiven – another massive tax benefit. For international people, the question is, what are the rules for deferred capital gains in the relevant country where the person who died either resided or was a citizen?
(9) Tax Treaties. If you are a citizen of the USA and reside in a foreign country, or are a citizen of a foreign country and reside in the USA, there are probably income tax treaties and estate tax treaties in place. These generally are designed to avoid your having to pay estate tax in two places, or pay income tax in two places on the same income. Treaties normally don’t place extra burdens on you – they are there for your protection and the protection of your heirs. That is why most treaties are “elective” – you don’t NEED to claim the treaty benefits if they don’t help you. The basic idea behind estate tax treaties is to say which countries get to tax which of your assets. Note that treaties are done on a national level. Taxation, medical and trust laws at the local level in the USA will still apply, as individual US states cannot enter into treaties with foreign governments.
If you are taking care of kids or elderly parents, or other people with disabilities, who will take your place after you die? In most places, that decision is made by the court where you (and where the person you take care of) is a full-time resident. It does not necessarily matter where the person you take care of is a citizen, but it might. Wherever it is that they live will almost certainly be a relevant jurisdiction where the courts will decide who gets to take care of them after you go.
You can often designate a successor guardian for your children, parent or disabled person you care for. That designation may or may not be binding on a court – probably it will not be, but the judge will consider your wishes and experiences as a care provider. The big picture issue for the judge will likely boil down to just one question: what is in the best interests of the kid or for the disabled person? For multinational people, you should look at guardianship rules in the country where you and your ward reside, but if the person you care for has multiple citizenships or resides in a country other than the country where they have citizenship, contact the embassy for the country where the person has citizenship. That country may have their own rules for appointing guardians.
Disclosure: I am/we are long SPY.
Additional disclosure: This isn't necessarily a comprehensive outline, and isn't advice on what you should or shouldn't do. It's general background information.
Here's a funny story. A couple of years ago I officially "retired" from the DC Bar. At least I thought I did. They kept sending me invoices for Bar dues, so I finally wrote them to ask why. Turns out that I am "ineligible" to retire. Well, my brokerage account begs to differ, but be that as it may, it turns out that there may be a solution which is for me not to "retire" but rather to "relinquish" my bar membership which I have now done. Except.... a committee has to decide whether to accept my relinquishment of my license to practice law. Did you ever see Godfather III? Where Al Pacino bemoans the fact that every time he tries to get out of the mob, "They keep pulling me back in." You get the idea.
Nothing in life is simple, so, hence, I produce outlines of a distinctly non-legal, non-advice-like, nature, to my good friends here on SA.