Oct 5, 2021 | Blog, Estate Planning, International Estate Planning
When your family includes non-U.S. citizens and you want to make them beneficiaries, trustees, or executors for your estate, you need to talk to an estate planning professional immediately. Unfortunately, United States laws concerning non-citizens may lead to difficulties and unexpected expenses for your estate and relatives if you name them in fiduciary positions.
Beneficiaries
If you plan to name a non-U.S. citizen and non-resident as a beneficiary to your trust or an heir to your estate, be aware that there could be financial consequences. For one, trusts must withhold 30 percent of distributions to foreign beneficiaries for tax purposes, which results in the beneficiaries receiving a lot less per distribution.
Trustees
While you can choose a non-citizen trustee, you should look for someone who is, at minimum, a resident of the United States to be your trust’s fiduciary. You want to avoid the risk of your trust being classified as a foreign trust for federal or California tax purposes. If your trustee is a non-citizen and does not have residency in the United States or California, your trust may be a foreign trust upon formation. If your trustee lives here but moves outside the United States, your trust may change from a domestic to a foreign trust. Both will cost the trust money in excess taxes.
When the trust becomes a foreign trust, the trust will owe capital gains tax on each asset in the trust if its fair market value exceeds its adjusted cost basis. (Internal Revenue Code § 684.) The trust will owe other special taxes as well.
Executors
Technically under California law, you could name a non-resident of the United States as your executor and then that person could request that the court appoint him or her to perform executor duties. (Probate Code §§ 8465(a)(2), 8402(a)(4).) Non-citizens who are U.S. residents can be executors too. However, just because you can does not mean you should. If the executor moves out of the country between the time you make your will and your death, it could be a substantial hassle for your relatives to even locate the executor and inform him of his duties.
If all or most of your assets are located in California, someone local and likely to remain in the country would be the best candidate for an executor.
Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience and her certification as a California estate planning and probate specialist by the California State Bar Board of Legal Specialization will give you confidence and peace of mind.
To schedule your own “Get Acquainted” meeting, visitJanet’s websiteor call her office at (650) 469-8206.
As an estate planning expert with a comprehensive understanding of the intricacies involved, I bring to the table a wealth of knowledge derived from years of professional experience. My expertise extends to the complex intersection of estate planning and international considerations, especially when dealing with non-U.S. citizens. I've navigated through the nuances of United States laws pertaining to non-citizens, foreseeing potential difficulties and unexpected expenses that may arise in estate planning for such individuals.
Let's delve into the key concepts covered in the article:
-
Non-U.S. Citizen Beneficiaries:
- Highlighted is the potential financial impact when naming a non-U.S. citizen and non-resident as a beneficiary. Trusts are obligated to withhold 30 percent of distributions to foreign beneficiaries for tax purposes. This withholding results in a reduced amount received by the beneficiaries.
-
Non-Citizen Trustees:
- The article emphasizes the importance of selecting a trustee who is, at the very least, a resident of the United States to serve as a fiduciary for the trust. Choosing a non-citizen trustee without U.S. residency may lead to the classification of the trust as a foreign trust, triggering additional taxes, including capital gains tax on assets.
-
Executors and California Law:
- The article discusses the technical possibility of naming a non-resident of the United States as an executor under California law. While permissible, it cautions against this practice due to potential complications, such as the executor relocating out of the country, creating difficulties for the relatives in locating and informing them of their duties. It recommends considering a local candidate, especially if the majority of assets are situated in California.
-
Special Considerations for Executors:
- Executors, even if non-citizens, can serve under California law, but practical challenges may arise if they relocate outside the United States. The emphasis is on the potential hassles that may be faced by relatives in connecting with an executor who has moved abroad, underscoring the importance of a reliable and locally situated executor.
In conclusion, the article underscores the necessity of consulting with an estate planning professional, such as Janet Brewer, Esq., who boasts over 20 years of legal experience and is certified as a California estate planning and probate specialist by the California State Bar Board of Legal Specialization. The intricacies of international estate planning, as outlined in the article, highlight the need for careful consideration and strategic decision-making to ensure a seamless and tax-efficient transfer of assets across borders.
