Multinational Clients Can’t Afford to Skimp on Estate Planning

Wills, prenups and even surrogate children may not be recognized in other countries, and taxes can be a minefield.

By Paula L. Green

As more U.S. citizens roam the world and acquire overseas assets, citizenships, spouses and heirs, financial advisors need a special toolbox to guide their multinational clients through the global estate planning maze.

“In the 1970s, it was the ‘Jet Set’ and one had to be rich to travel. That is no longer the case,” said Paula M. Jones, attorney at Jones Estate Group, during a May 22 webinar hosted by Equita Financial Network. “We are seeing incredible mobility among people and this will only continue.”

In 2016, for example, 80 million U.S. citizens travelled abroad, more than four times the 19.7 million people that headed overseas in 1996. That same year, 46.4 million people visited the U.S and 20 years later in 2016, the number of visitors jumped to 75 million.

At the same time immigration inflows into the United States are up and in 2022, more than 1 million people became legal permanent residents of the U.S. About 600,000 of these new residencies were based on family; 270,000 on employment; and 80,000 were refugees and/or asylum seekers. Most people headed to metropolitan areas in New York, New Jersey and Pennsylvania; Los Angeles; Miami; Washington D.C.; and Houston, according to the 2022 Yearbook of Statistics, U.S. Office of Immigration Statistics, Department of Homeland Security. In 2022, 970,000 people became U.S. citizens.

The pool of multinational clients has also increased with the proliferation of government programs that let individuals gain citizenship through their ancestors and special immigration programs that grant citizenship in exchange for investments in a country.

“Geopolitical forces are prompting people to play musical chairs,” said Jones, who has been practicing international and domestic estate law for 25 years.  “Covid sent people overseas to work remotely and people stayed and bought property, got married and had children.

“All of this triggers various issues and we don’t know what we don’t know,” she added.

Client Intake Issues

Multinational clients come with unique issues and financial advisors must execute due diligence during their intake sessions so no crucial issues are overlooked. These intake issues pertain to citizenship and residency status, income tax status, the status of family members, the location of assets and conversion of asset values to the U.S. currency. Multinational clients also need estate and income tax advice.

“You have to ensure the money they (clients) have is earned properly and there are no sanctions against them, depending on the client,” said Jones, adding that no one wants to run afoul of the Office of Foreign Assets Control, an arm of the U.S. Department of the Treasury. The office is charged with enforcing economic and trade sanctions imposed by the U.S. against countries and groups of individuals. “Client intake issues can be a minefield. There are issues you might take for granted that you cannot take for granted.”

The definition of a marriage, for example, is up for grabs as some countries do not recognize same-sex marriage, negating the provisions of a standard will drawn up in the United States. Pre-nuptial agreements may not be honored in other countries. Likewise, other countries’ governments and courts do not always recognize stepchildren as legal heirs and surrogacy can be prohibited, meaning special provisions are needed to ensure estate assets are distributed to all of a parent’s children.

Jones provided the example of a husband and wife who are both British citizens and maintain a tax domicile in India, though they live mostly in Hollywood in California. Having one child the old-fashioned way and another via surrogate, she said the couple must ensure both children are legally considered their heirs, since India has not always recognized them as parents of their second child.

Coordinate with Overseas Counsel

As a U.S. attorney cannot possibly know all laws around the world, she urged estate planners to coordinate with counsel based in the appropriate jurisdiction and with experience in global estate planning.

“If the client moves to India, you need counsel in India,” she said, adding the choice must not be a local lawyer unfamiliar with international intricacies.

When coordinating the estate plan, some of the issues to check include wills, revocable trusts, financial power of attorney, medical power of attorney, irrevocable trusts, guardianship for minors, disposition of remains, and marital and parenting agreements.

Regarding guardianship for minors, she said a will might include a provision for a temporary guardian of a minor child if the permanent guardian has to travel around the world to be with the child. “When families are far afield and the permanent guardian has to catch an 18-hour flight to Asia, a temporary custodian might be needed,” Jones added.

Counsel in the appropriate overseas jurisdictions will know the unique laws, such as forced heirship, that can override the provisions of a will created in the United States. “The U.S. is like the Wild West; we do want we want here,” Jones said. And other countries can have unusual laws with surprising ramifications, she noted.

The Fallout of U.S. Taxes

The U.S. government can have its own surprising financial consequences for multinational individuals when it comes to taxes — whether placed on income or estates.

The U.S. government moves beyond its borders as the Internal Revenue Service can tax all worldwide income of a U.S. citizen, wherever the individual or income is located. Meanwhile, non-U.S. residents are taxed on income sourced in the United States. The IRS has about 200 income tax treaties with other countries to ensure an individual does not face double taxation.

Regarding estates, the basis for estate and gift taxation for U.S. citizens is the gross estate, wherever it is situated. The same holds true for U.S. residents. U.S. situs property pertains to property owned by a person who is not a U.S. citizen or resident. U.S. situs assets generally include real and tangible personal property located in the U.S., business assets located in the country, and stock of U.S. corporations. The owner is given only a $60,000 exemption and must file appropriate paperwork for taxes on the next $5 million, which can reach 40%.

The IRS has estate and gift tax treaties with more than 15 countries and the definition of U.S. situs assets may be modified by an applicable estate and gift tax treaty.

The U.S. government maintains a long reach when it comes to taxes. “The U.S. is a minefield,” Jones said. “The IRS wants to stay in touch.”

She also noted that the U.S. federal estate and gift tax exemption, $13.61 million in 2024, will drop to $6 million in 2026. “Planning needs to be done,” she said.

Paula L. Green is a New York City-based freelance journalist with more than three decades of reporting and editing experience that spans coverage of international business and finance issues to murders and politics at the Jersey Shore to presidential press conferences in Argentina and Mexico. She can be contacted by [email protected].

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