Receiving an inheritance can be met with mixed emotions. While the financial windfall will inevitably seem promising, news of an inheritance can also be emotionally overwhelming.
A range of questions may come to mind, especially if the inheritance was passed onto you by a family member living abroad. You might wonder how you can access the inheritance, how you can bring it to the United States, and whether or not you’ll need to pay taxes on it.
In this blog, we will provide answers to each of these questions so you can claim your inheritance with confidence. As with all international financial matters, we encourage you to protect your best interests by seeking the guidance of an international tax professional or estate planning attorney.
The Process of Receiving an Overseas Inheritance
Step 1: Protect Yourself From Fraud
When you are notified of your overseas inheritance, the first step is to ensure its legitimacy.
If you’re informed of your inheritance by phone or email, you must protect yourself by making sure the inheritance is real and not a fraud scheme. Unfortunately, many email-based internet scams deceive people into thinking they are recipients of a nonexistent inheritance.
For example, a lot of these emails will build a narrative around a distant relative with a shared last name who has “unexpectedly passed you their inheritance.” Fortunately, many of these emails are poorly written, riddled with grammatical mistakes, and easy to identify.
These fake emails are typically sent to countless recipients. To check the email’s authenticity, simply paste the text into Google search to see if the language has been borrowed or if others have received the same message.
Many of these scams will request your bank account information to either “pay for administrative fees” or transfer the funds. Never give your bank information until you have definitive proof of the inheritance, have spoken with the executor of the will, and have the approval of your financial professional.
Step 2: Obtaining the Inheritance
Once you have verified the legitimacy of the inheritance, you can then decide how you would like to receive the funds. There are three primary options at your disposal:
- Request a check issued in your relative’s local currency. If the exchange rate is favorable, this may be the most compelling option. Be mindful that checks issued and sent abroad can take several weeks to arrive.
- Use your primary bank to transfer the money. While this may be the easiest route to repatriate funds, your bank will likely charge fees for both the transaction and for converting the payment into US dollars.
- Use a money transfer provider to receive the inheritance funds. By helping you save on exchange rate margins, companies like OFX and Worldfirst provide a less expensive method than transferring funds directly through your bank.
Explore each of these options to see which is most affordable, reliable, and expedient for your individual situation.
While most inheritances will be transferred without hassle, there are a few countries that may involve oversight by the Office of Foreign Assets Control (OFAC). If your inheritance originates from one of the sanctioned countries overseen by OFAC, you may want to consult an attorney before starting the transfer process.
Click here to view the list of OFAC sanctions programs.
Step 3: Meeting IRS Reporting Requirements
In most cases, you will not have to pay taxes on your overseas inheritance. Any outstanding taxes will be handled by your relative’s estate and paid in their home country.
There is only one situation in which you may have to pay taxes on your foreign inheritance.
If the inheritance came from an individual who renounced their US citizenship (or formerly held a Green Card), you may be subject to additional taxes. According to the Internal Revenue Code (IRC), these individuals are considered “covered expatriates,” or former citizens who left the United States with a net worth over $2 million.
If you have received an inheritance (or a financial gift) from a covered expatriate, seek tax and legal counsel to ensure you’re making the most prudent financial decisions.
While most foreign inheritances will never be taxed, you may still have to report them to the Internal Revenue Service (IRS). If the total value of your inheritance (and any other foreign gifts or bequests) exceeds $100,000 in a given year, you must report that information on the IRS Form 3520.
Be aware that any incorrect reporting may be subject to a monthly penalty of 5 percent of the total value.
Getting Started
Obtaining your foreign inheritance requires work, but the reward will be well worth the effort.
With uLink, you can send money abroad to family and friends in just a few short steps. With great exchange rates and fees starting as low as $0, you can ensure your loved ones always have what they need.
Plus, after your 1st, 2nd, and 5th transactions, we’ll send you a $10 gift card to use at your favorite retailers. That’s $30 in gift cards after your first five transactions with uLink.
Miles from home — just moments away with uLink.
Handling an international inheritance involves multifaceted considerations, encompassing legal, financial, and tax implications. The process demands caution and thorough understanding to navigate potential pitfalls. Let's dissect the concepts and information within the article you provided:
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Fraud Protection: Identifying legitimacy is paramount. Scams often exploit email and phone communications, claiming false inheritances. Red flags include poorly written messages with grammatical errors. Verifying authenticity by using search engines to cross-reference received content is a prudent initial step.
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Options for Receiving the Inheritance: a. Local Currency Check: Opting for a check in the relative's currency could be favorable due to potential exchange rate advantages. However, this method might take considerable time. b. Bank Transfer: Utilizing your primary bank for the transfer is convenient but may incur fees for transactions and currency conversion. c. Money Transfer Providers: Services like OFX or WorldFirst offer cost-effective alternatives by reducing exchange rate margins compared to direct bank transfers.
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OFAC Oversight: For inheritances originating from countries overseen by the Office of Foreign Assets Control (OFAC), legal consultation might be necessary due to potential complications in the transfer process.
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IRS Reporting and Taxation: a. Tax Obligations: Generally, inheritances aren't taxed, with any outstanding taxes managed in the deceased relative's home country. b. Exceptions: Tax liability could arise if the inheritance is from a covered expatriate with a net worth over $2 million who renounced US citizenship. Seeking professional guidance in such cases is advised. c. IRS Reporting: Reporting foreign inheritances exceeding $100,000 in a year is mandatory on IRS Form 3520, with incorrect reporting incurring penalties.
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Getting Started: Initiating the process involves careful planning and adherence to legal and financial protocols. Platforms like uLink facilitate international fund transfers, offering competitive rates and incentives for users.
Navigating an international inheritance necessitates meticulous attention to detail and adherence to legal and tax regulations. Seeking professional guidance, such as from international tax professionals or estate planning attorneys, is highly recommended to ensure a smooth and legally compliant process.
