Estate planning can become extremely complicated when it comes to properly incorporating elements that are not based in the United States. That is no to say that the potential benefits are outweighed by these complications, but making the best use of opportunity requires careful planning to not incur stiff penalties in the long run. Two common ways that a property transfer from outside the United States may be included in your estate plan are through foreign trusts and ownership of stocks in foreign companies.
When a transfer is made to a foreign trust while the intended beneficiary is a U.S. resident, there are some significant reporting requirements that will be levees against both the trustee and the beneficiary. On top of this, assets that are distributed to a U.S. person will likely be subjected to U.S. income taxes. Likewise, when a U.S. person makes a transfer into a foreign trust, the income generated to the trust will be subject to the U.S. reporting rules, even if the assets are not distributed to a U.S. resident.
When a U.S. resident is gifted stock in a foreign corporation, they will likely have to contend with the U.S. anti-tax-avoidance rules. Anti-tax-avoidance rules are in place to protect against significant assets building up where they cannot be taxed by the U.S. government. There are separate sets of rules that apply to different kinds of companies, each with their own specific requirements for controlled foreign corporations, foreign personal holding companies, and passive foreign investment companies.
These brief summaries barely graze the surface of this complex field. If you are creating or maintaining an estate plan that will feature these or any other elements that may involve international taxation, you must be very careful. The guidance of an experienced attorney can help you navigate these issues and create the perfect plan for your needs.
Source: Findlaw, “U.S. Tax Rules Apply to Inheritances and Gifts from Abroad,” accessed Nov. 30, 2016