Whether you are moving to another country for work-related reasons, retirement, or simply want an opportunity to experience a new culture, it is important to understand the potential tax and estate planning implications. If you do not, you could be hit with some unpleasant surprises. Here are three possible pitfalls:
Double taxation. If you are a citizen of the United States, U.S. taxes will apply even after you move to another country. So, if your estate is large, you might be subject to gift and estate taxes in your new country and in the United States (possibly including state taxes if you maintain a residence in a U.S. state). You also could be subject to estate taxes abroad even if your estate is not large enough to be subject to U.S. estate taxes. In some cases, you can claim a credit against U.S. taxes for taxes you pay to another country, but these credits are not always available.
One option for avoiding U.S. taxes is to relinquish your U.S. citizenship. But this strategy raises a host of legal and tax issues of its own, including potential liability for a one-time ‘expatriation tax.’
Real estate issues. If you wish to purchase a home in a foreign country, you may discover that your ability to acquire property is restricted. Some countries, for example, prohibit foreigners from owning real estate that is within a certain distance from the coast or even throughout the country. It may be possible to bypass these restrictions by using a corporation or trust to hold property, but this can create burdensome tax issues for U.S. citizens.
Unfamiliar inheritance rules. If you own real estate or other property in a foreign country, your heirs may run up against unusual inheritance rules. In some countries, for example, your children have priority over your spouse, regardless of the terms of your will.
Review before you relocate
If you are considering a move overseas, discuss your plans with us before making a move. We can review your estate plan and finances and make recommendations to help avoid tax pitfalls after you relocate.