There is no such thing as a “typical family.” At The Tyra Law Firm, we work with families on a daily basis that comes in all shapes and sizes. Many families are blended, meaning that they include children from previous relationships. Many families have separate households, or single parents, or multiple generations living under one roof. No matter the structure, each and every family needs a carefully-tailored and uniquely designed estate plan to suit their needs. The same is true of cross-border families.
What Do We Mean By ‘Cross-Border' Families?
In our work, we use the term ‘cross-border' families to mean any family structure that includes one U.S. citizen and one non-U.S. citizen. The non-citizen parent may be a U.S. resident or a nonresident alien. Regardless of his or her immigration status and nationality, every family member's needs and goals need to be taken into consideration when constructing a comprehensive estate plan.
How is Estate Planning Different with a Non-U.S. Citizen Parent?
In general, estate planning is actually the same for citizens and non-citizens. Every person here in the U.S. still needs a Will, a Power of Attorney, and a Healthcare Directive. Non-citizens can inherit property and retain custody of their children. The differences arise, however, when it comes to taxation.
Although state laws will typically treat non-U.S. citizen spouses the same as citizen spouses in the probate process, the IRS will view estate and gift taxes very differently. As you likely know, federal law requires taxes to be paid whenever assets change hands. When assets are transferred after death, however, there are a few exemptions. First is the estate tax. Under current law, estate taxes are only due on transfers of assets valued at $11.58 million or more. For married couples, this number is doubled. There is also something called the “unlimited marital exemption,” which allows any amount to be transferred between spouses without any taxation. However, these rules do not work in exactly the same way for cross-border couples.
If the non-U.S. citizen spouse passes first, the surviving U.S. spouse can receive the benefits of the estate tax exemption and the unlimited marital exemption. If, however, the U.S. citizen spouse dies first, the unlimited marital exemption and the estate tax threshold are both significantly lowered or eliminated. Substantial holdings in the U.S. could result in a huge tax bill for the non-U.S. citizen spouse.
What about a U.S. Citizen Living in Another Country?
If a U.S. citizen travels or lives abroad, he or she is still subject to U.S. tax laws. That means, no matter where in the world a U.S. citizen lives or dies, the IRS will impose taxes on that person's worldwide assets, including the proceeds of life insurance policies, retirement assets, personal property, real estate, and more.
How Should Estate Plans be Tailored to Serve Cross-Border Families?
As with any estate plan, the specific family's needs should be taken into account. Each and every estate plan will look different, depending on the unique family structure and assets. However, families with multiple nationalities are in particular need of a cross-border estate plan that is uniquely tailored to them. It may be possible to use a trust to avoid high taxes and to protect a non-U.S. citizen spouse, as well as any children in the family.
Where Should You Start?
Getting started with an estate plan is the hardest part. But it doesn't have to be! Just contact The Tyra Law Firm today, and we will guide you through the process every step of the way!