Bridging borders: An introductory guide to cross-border estate planning

We live in an increasingly global society, which means it is more likely that you have, or will acquire, ties to another country. For U.S. citizens who live or own property in another country, these connections can significantly impact your estate plan. Here are some initial considerations to help guide you as you begin to navigate your cross-border planning:

Engage local professionals

As each country has its own rules, you will want to consult an estate planning professional in each country where you have connections to make sure you understand how those rules will impact you and your property. In some cases, you may need two separate estate plans — one in the U.S. and one in the other country. While this can be more expensive, it can avoid potentially costly mistakes in the administration of your estate. It is also important that your estate planning professionals coordinate with each other to make sure that the documents complement — rather than contradict — each other and neither revokes the other.

Know the citizenship and residency of your beneficiaries

The citizenship or residency of the individuals that you name as beneficiaries may also impact your planning. For example, a beneficiary who resides outside of the U.S. may be subject to additional reporting obligations or taxes in their country of residence as a result of receiving property — either outright or in trust — from you. Additionally, if the beneficiary of your U.S. retirement plan is not living in the U.S. when you die, your retirement plan administrator may require that the beneficiary establish a U.S. address in order to process retirement plan distributions to the beneficiary.

Exercise caution with trust planning

If you are using trusts in your estate planning, be mindful of whether other countries will recognize that trust. For U.S. tax purposes, also consider whether a trust will be classified as a “foreign trust,” as that can trigger certain U.S. reporting and tax obligations. Generally, a trust will be considered a foreign trust if the U.S. is not able to exercise primary jurisdiction over the trust or the individuals with control (including the trustee) are not U.S. persons.

Be aware of forced heirship laws

In the U.S., you generally have the freedom to leave your assets to whomever you wish upon your death. However, other countries have a concept known as “forced heirship,” which can require certain individuals (such as a spouse or children) to inherit property regardless of your intent. The good news for U.S. citizens, though, is that with proper planning you may be able to avoid — or at least mitigate — the impact of forced heirship laws.

Consider international agreements:

International conventions and tax treaties can play a significant role in cross-border estate planning. International conventions provide guidance on cross-border planning issues in those countries that have adopted a particular convention and could impact how you choose to structure your will or other estate planning documents. For example, if you have connections in two countries that are both signatories to a convention that provides requirements for a valid will, you may want to include provisions in your will to comply with the convention requirements so that the will is recognized in both countries. In addition to conventions, tax treaties can significantly impact your cross-border estate plan. The U.S. is a party to multiple estate and gift transfer tax treaties with different countries, which are often designed to minimize double taxation. It is important to understand the impact of these treaties on your estate plan.

Prepare before changing your status

If you are thinking about relinquishing your U.S. citizenship or green card, be aware that you may be subject to the U.S. “exit tax” on your worldwide assets. Prior to changing your citizenship or residency status, you should consult your estate planning or tax advisor to understand whether this tax may apply to you.

A cross-border estate plan typically is more complex than a traditional estate plan. By being aware of the additional questions and considerations you will need to think through, you will be better prepared when you meet with your estate planning professionals to establish a plan that meets your goals. For more information on cross-border planning, reach out to your CIBC advisor.

Nicole Hostettler is a senior wealth strategist at CIBC Private Wealth with over 10 years of industry experience.