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Estate planning for non-U.S. citizens: What you need to know

by Legacy Plan
November 20, 2023

When it comes to estate planning, there are a lot of things to consider – no matter your citizenship status. If you’re a non-U.S. citizen, there are some additional things you need to take into account to ensure that your assets are distributed according to your wishes. Here’s what you need to know about estate planning for non-U.S. citizens:

Your citizenship status

The first thing you need to know is your citizenship status. There are three main categories of citizenship status: U.S. citizen, lawful permanent resident (LPR) and nonimmigrant.

If you’re a U.S. citizen, you have the right to live and work in the United States permanently. You’re also subject to all U.S. laws, including tax laws.

If you’re an LPR, you have the right to live and work in the United States indefinitely. You’re also subject to U.S. laws, but you may be eligible for certain benefits, like Social Security or Medicare, that nonimmigrants aren’t eligible for.

If you’re a nonimmigrant, you have the right to live and work in the United States temporarily. Your stay is limited by the terms of your visa, and you’re not subject to U.S. laws in the same way that U.S. citizens and LPRs are.

Your domicile status

a pin stuck on a location of a globe

Your domicile status is important because it determines which country’s laws will apply to your estate. There are three main categories of domicile status: domiciled in the United States, domiciled in another country and dual domicile.

If you’re domiciled in the United States, that means the United States is your primary residence and you intend to keep it that way indefinitely. All of your assets will be subject to U.S. estate taxes, regardless of where they’re located.

If you’re domiciled in another country, that means you don’t consider the United States to be your primary residence – even if you have assets here. Your estate will only be subject to U.S. estate taxes on assets located in the United States.

If you have dual domicile status, that means you consider both the United States and another country to be your primary residences. Your estate could be subject to both U.S. and foreign estate taxes on your assets – so it’s important to plan carefully to minimize your tax liability.

Your assets

Your assets are everything you own – including your home, your savings and your investments. If you die without a valid will or trust in place, your assets will be distributed according to your state’s laws of intestate succession – which may not be what you want. That’s why it’s so important to have a valid estate plan in place, regardless of your citizenship or domicile status.

Understanding the basics of estate planning for non-U.S. citizens

If you are a non-U.S. citizen with assets in America, you need an estate plan tailored to your unique circumstances. While estate planning is important for everyone, non-citizens face extra considerations given complex IRS rules and regulations. Here are some key aspects to understand when creating your cross-border estate plan.

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  • Determine your U.S. domicile status. This governs how much of your worldwide estate is taxable in the U.S. If ruled a U.S. domiciliary, your global assets may be partly subject to U.S. estate taxes. Non-domiciled foreigners only pay tax on U.S. situs assets.

  • Understand situs laws. These rules determine where assets are deemed situated for estate tax purposes based on factors like physical location and intangible ownership. Real estate and tangible property are taxed based on location, while stock may be sitused based on owner domicile.

  • Review any relevant tax treaties. Some countries have estate tax treaties with the U.S. that alter exemption levels and rates. See if your home country has a favorable treaty and understand the specifics applicable to your situation.

  • Minimize U.S. assets. To reduce exposure to U.S. estate tax, limit U.S. assets not covered by tax treaties through ownership strategies and lifetime transfers. Make full use of the discounted $60,000 estate tax exemption for nonresidents.

  • Choose executors carefully. Select responsible individuals who can handle the extra duties and paperwork involved in administering a non-citizen estate. You may need executors both in the U.S. and your home country.

  • Update beneficiary designations. Review accounts, insurance policies, retirement plans and other assets with beneficiary designations, and update them if needed based on your estate planning objectives.

  • Draft powers of attorney. Grant U.S. and home country powers of attorney to trusted individuals so they can manage your worldwide assets and financial affairs if you become incapacitated.

Another consideration for non-U.S. citizens when estate planning is the issue of probate. Probate is the legal process that is used to determine how an individual's assets will be distributed after they die. In many cases, probate can be avoided altogether by using certain types of trusts. However, it is important to note that not all countries recognize trusts, and as such, it is important to consult with an attorney or tax advisor who is familiar with both U.S. and foreign law to ensure that probate can be avoided in the country where the individual is a citizen.

U.S. tax obligations for non-citizens

someone doing taxes

As a non-citizen of the United States, you may still have tax obligations to the IRS. This is because the U.S. taxes on a worldwide basis. So even if you do not live in the U.S., you may still be required to pay taxes on income you earn from U.S. sources.

There are, however, some exceptions and exclusions that may apply. For example, there are certain tax treaties between the U.S. and other countries that can exempt you from paying taxes on income you earn in the U.S. There is also an exclusion for certain kinds of income, such as interest and dividends, that is earned from U.S. investments.

Beneficiary designations for non-U.S. citizens

When it comes to beneficiary designations for non-U.S. citizens, there are a few things you need to keep in mind. First and foremost, you need to be aware of the situs rules. These rules dictate which country’s laws will govern the distribution of your assets in the event of your death.

If you have assets in multiple countries, it’s important to designate a beneficiary for each country. That way, there’s no confusion about who is supposed to inherit what.

Also, don’t forget to update your beneficiary designations regularly. Things change – people get married, have kids, get divorced, etc. – so it’s important to keep your beneficiary designations updated.

Strategies to avoid probate for non-U.S. citizens

Estate planning for non-U.S. citizens can be a bit more complicated than for U.S. citizens. This is because there are a few more factors to consider, such as whether or not the person owns property in the United States and whether or not they have any U.S.-based assets.

For those who do not have any U.S.-based assets, the estate planning process is fairly simple. The main issue to consider is whether or not the person wants to leave anything to their heirs. If so, they will need to set up a trust. The trustee will be responsible for distributing the assets according to the instructions in the trust.

For those who do have U.S.-based assets, the estate planning process is a bit more complicated. This is because the person will need to consider how to transfer their assets to their heirs without going through probate.

One way to avoid probate is to set up a revocable living trust. With this type of trust, the person can transfer their assets into the trust and then designate a successor trustee to take over after their death. The successor trustee will be responsible for distributing the assets according to the instructions in the trust.

Another way to avoid probate is to transfer the ownership of the assets into a joint tenancy with right of survivorship. With this type of ownership, the assets will automatically pass to the surviving joint tenant after the death of the other owner.

The decision of whether or not to go through probate will ultimately come down to the individual and their specific situation. However, for those who wish to avoid probate, setting up a trust or transferring ownership into a joint tenancy with right of survivorship are both options to consider.

Differences in estate planning for different types of non-U.S. citizens

permanent U.S. resident card

There are a number of considerations to take into account when conducting estate planning for non-U.S. citizens. The first thing to understand is that there are different types of non-U.S. citizens, each with their own set of rules and regulations when it comes to estate planning.

The most common type of non-U.S. citizen is the permanent resident. Permanent residents are immigrants who have been granted permission to live and work in the United States indefinitely. When it comes to estate planning, permanent residents are treated much the same as U.S. citizens. They can create wills, trusts and other estate planning documents to control how their assets will be distributed after they die.

Another type of non-U.S. citizen is the non-permanent resident. Non-permanent residents are immigrants who have been granted permission to live and work in the United States for a specific period of time. After their permission expires, they are required to return to their home country. When it comes to estate planning, non-permanent residents need to make sure their wills or trusts are valid under both U.S. laws and laws of their homeland. Also, non-permanent residents may need to appoint a U.S. trustee to manage the trust.

No matter what type of non-U.S. citizen you are, it's important to understand the estate planning options available to you. By taking the time to plan ahead, you can ensure your loved ones are taken care of and your assets are distributed according to your wishes.

Potential downsides of estate planning for non-U.S. citizens

If you are not a U.S. citizen, you may not think that estate planning is something that you need to worry about. After all, estate planning is all about making sure your assets are distributed the way you want them to be after you die, and if you don't have any assets in the United States, why would you need to worry about it? However, there are actually a few potential downsides to not doing any estate planning, even if you are not a U.S. citizen.

One potential downside is that, even if you don't have any assets in the United States, you may still have family members who live here. If something were to happen to you, and you didn't have an estate plan in place, it could cause a lot of problems for your family members. They may not be able to access your accounts or assets, and they may not know what your wishes are for your funeral or other final arrangements.

Another potential downside is that, even if you don't have any assets in the United States, you may still owe taxes here. If you die without an estate plan, the IRS may try to collect any unpaid taxes from your estate, which could end up leaving your family members with a hefty tax bill.

Finally, even if you don't have any assets in the United States, your estate may still be subject to probate. Probate is the legal process of distributing your assets after you die, and it can be a long and expensive process. If you don't have an estate plan, your family members may have to go through probate in order to get access to your assets.

While there are potential downsides to not doing any estate planning, even if you are not a U.S. citizen, it is still important to consider your options and to consult with an experienced estate planning attorney to find out what is best for you and your family.

How do I create an estate plan?

There are numerous options and scenarios to consider when developing an estate plan that protects your legacy and achieves your objectives, and important decisions should be made with the advice of qualified lawyers and financial experts. Membership with Legacy Assurance Plan provides members with valuable resources and guidance to develop comprehensive estate plans that take life's contingencies into consideration and leave a positive impact for generations to come. Legacy Assurance Plan members also receive peace of mind that a team of trusted, experienced professionals will assist them in developing legal, financial and tax strategies that will meet their needs today and for years to come through periodic reviews.

This article is published by Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at legacyassuranceplan.com.

Phone - 844.445.3422
Email - info@legacyassuranceplan.com
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