Beneficiaries in multiple countries significantly complicates the estate planning process

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One of the reasons it’s important to choose an estate planning attorney with international experience is that having beneficiaries in multiple countries significantly complicates the planning process. Failing to consider the tax laws and reporting requirements in each beneficiary’s jurisdiction and/or country of citizenship can have disastrous consequences for the generational transfer of wealth.

Recently, we completed an estate plan for a family that had adult children remaining in Mexico and adult children living in the United States. This family’s planning process involved redomiciling investments and creating multiple trusts to ensure that each heir or beneficiary would receive the maximum value from their inheritance.

Redomiciling Investments to Avoid CRS Reporting Requirements

As we’ve discussed before, the Common Standard on Reporting and Due Diligence for Financial Account Information (CRS)—created by the Organization for Economic Cooperation and Development (OECD) and used by almost every other country outside the United States—has much stricter reporting requirements than the Foreign Account Tax Compliance Act (FATCA) used in the United States. Like many wealthy Mexican and Latin American investors, our client had set up accounts in Switzerland due to its previous reputation as an international tax haven and its bank secrecy laws. However, since the implementation of CRS has essentially turned the United States into the new Switzerland, we moved our client’s investments from Switzerland to the U.S. to take advantage of FATCA’s less restrictive tax and privacy laws.

If you’d like to learn more about how FATCA and CRS may affect your estate planning goals, we encourage you to request a copy of our complimentary whitepaper, Is It a Matter of FATCA or CRS? What Every Investor With Foreign Accounts Needs to Know.

Creating Trusts to Reduce the Tax Burden for Beneficiaries

Once our client’s investments were redomiciled, we created multiple trusts to avoid the harsh tax consequences of having both U.S. and foreign beneficiaries in a single trust. Trusts are a highly effective way to protect U.S. assets from gift and estate taxes. By creating one trust for U.S. beneficiaries and one for beneficiaries in Mexico, we allowed both categories of beneficiaries to successfully limit their tax liability.

We also created an irrevocable life insurance trust (ILIT) for the client’s life insurance as an alternative to naming beneficiaries that reside in Mexico and as required by the premium financing strategy implemented. When an ILIT is structured properly, the death benefit paid to the trust is free from income and estate tax. The ILIT minimizes state and federal estate taxation in the United States and recharacterizes the death benefit as an inheritance that may avoid income taxation in Mexico if done properly.

Let Us Help You Create an Estate Plan That Fits Your Family’s Unique Needs

At MEG International Counsel, we’re committed to providing clients with international estate planning services personalized to meet their unique needs. Request our complimentary guide, The Definitive Blue Book of Estate Planning for Foreign Millionaires, to familiarize yourself with key estate planning concepts, then contact us to schedule a consultation to discuss how we can help you achieve your estate planning goals.

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