Avoiding estate taxes is a common goal for any estate plan, but non-residents who are seeking to avoid estate taxes in the United States face unique struggles. The most significant of these challenges is that foreigners and non-residents pay estate taxes for U.S.-situs property. This means that all property owned by a foreign resident located in the U.S. at the time of death is subject to estate taxes—unless the property falls under an exemption.
Options for Reducing Tax Liability
Estate plans for non-residents can be trust-based, entity-based, or combine elements of both approaches. These plans allow you to move assets out of your name so that they are not subject to U.S. estate taxes when you pass away. Instead of being owned in your name, the assets are legally owned by the trust or an entity such as a corporation or limited partnership. When passed to your heirs, the assets continue to be owned by these legal structures so they can be enjoyed by future generations without creating an unnecessary tax burden.
If you're trying to protect investments or other financial assets, trust-based solutions are ideal. Depending on your country of residence, this will also protect your privacy and security by avoiding the reporting provisions of FATCA and CRS.
Determining the best option for real estate property is a little more complicated. Personal-use real estate can generally be protected by either a trust-based plan or an entity-based plan. Commercial-use real estate typically uses a combination of trust-based and entity-based planning.
When you are creating an international estate plan, there are three factors that should be considered to determine the best strategy for reducing tax liability:
- The nature of the asset you wish to protect
- Your residency
- The country of residence and/or citizenship status of your beneficiaries
Planning Ahead Is the Smartest Approach
Pre-purchase or pre-investment planning is key. Not only is it easier and more cost-effective to proactively address these concerns, but you'll have fewer options for managing your tax liability if you wait to plan until the asset is in your possession.
At MEG International Counsel, we are committed to providing our clients with estate planning services personalized to fit their needs as Mexican or Latin American investors. We encourage you to request our book, 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.