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Recently, we worked with a client whose circumstances serve as an illustration of the value of U.S.-Mexico cross-border estate planning. He inherited a $2 million home in San Diego that was facing the second round of estate taxes in just 12 months. The property had belonged to his aunt, who had left it to her daughter. When the daughter passed away less than a year later, our client received the property.

While there was no way to avoid taxation in this circumstance, we reduced total tax exposure by eliminating penalties, surcharges, and interest. Our client then took out a new mortgage, which allowed him to keep the home while still preserving the property for the next generation. The alternative would have been to sell the property, use the proceeds to pay the estate taxes, and pocket the remaining funds.

How Planning Ahead Could Have Produced a Different Outcome

In this scenario, prior planning would have resulted in a much more beneficial outcome. When you’re considering potential mortgage loans for domestic and foreign investment, you should think about what happens if you need or want to sell the property, as well as how the investment will be passed to your heirs.

A common strategy that we recommend for Mexican investors purchasing U.S. real estate is to use life insurance to provide a source of funds to pay the estate taxes. Estate taxes must be paid within nine months of the date of death, so life insurance helps ensure the necessary liquidity without the delay associated with probate.

Alternatively, estate taxes could have been eliminated altogether if the property was owned by an irrevocable trust or an LLC owned by a trust. Real estate investors with multiple properties can use a series LLC owned by a trust to have a single operating agreement for various subsidiary LLCs to diversify the liability associated with each project.

While it won’t reduce estate tax liability, we also advise our clients to create one will for each country where they hold assets. In this case, the prior owner of the home had a will in Mexico and no will in the United States. If the prior owner had taken the time to create two wills, the process of settling the estate would have taken a few months instead of a few years. This would have greatly reduced the stress our client faced while dealing with the traumatic loss of a loved one.

Let MEG International Create a Plan to Protect Your Assets

Companies offering mortgage loans for Mexicans investing in the United States often fail to advise their clients of the tax liability that can come with purchasing real estate in the U.S. Attorneys Antonio Gastélum and María Elia Gastélum have the expertise necessary to handle the specialized estate planning needs of cross-border families. They will consider the challenges posed by your nationality, residency, or immigration status to create a plan that is personalized to fit your specific needs. 

To learn more about the need for U.S.-Mexico cross-border estate planning, you can request a complimentary copy of The Definitive Blue Book of Estate Planning for Foreign Millionaires. To schedule a consultation with MEG International Counsel, contact us online or call us today at (800) 694-6604.

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