Considerations When Leaving Estates to Non-U.S. Citizen Beneficiaries – Part 2

In my post last week, I answered the question whether leaving assets to a non-U.S. citizen triggers any additional tax when compared to a U.S. beneficiary.  With the exception of a spouse, it generally makes no difference from an estate or inheritance tax standpoint.  There are, however, other practical considerations to take into account.

For example, before an executor or administrator distributes the estate to the heirs, he or she should prepare an accounting showing what was taken into the estate, what was paid in estate debts and taxes and what each heir’s share of the remaining estate is.  It is a good practice – for the fiduciary’s protection – that each heir sign a release and refunding bond which releases the fiduciary from any liability before funds are distributed.

While it is recommended that these documents be signed before a notary, that can sometimes be problematic logistically if the heir lives in a remote area not near the U.S. embassy or consulate or where a notary can easily be found.  While this certainly isn’t a reason to change one’s chosen heirs, it can lead to some delays or necessitate work arounds to insure that all documents are properly signed and acknowledged.

Additionally, there may be tax issues when leaving assets to a non-U.S. citizen.  It is a good idea to consult a tax advisor who is familiar with the tax laws in the foreign country as well as the implications of any tax treaty between the U.S. and that country.  Leaving an IRA to a non-U.S. beneficiary, for example, may cause such a beneficiary particular tax issues that are not applicable to U.S. beneficiaries.  In some cases it may be wise to pick and choose certain  assets to leave or not leave to foreign heirs.  

Finally, language barrier and unfamiliarity with the U.S. financial system and institutions may cause heirs problems if the assets are non-probate ones.  In that case, there is no one in the U.S. that they can rely on to assist them, since the executor or administrator has no direct access to these assets.  Elderly foreign heirs may have particular difficulties navigating the U.S. system.

When there is no will and under the intestacy laws there are foreign heirs, the problem can be more tangled.  I’ll explain that next week.