Planning With Foreign Assets

Foreign assets require coordinated planning under U.S. law and the law of the country where they are held. For U.S. citizens and residents, these assets can create income tax, estate tax, and reporting obligations. Local rules also determine how property passes at death and whether U.S. wills or trusts are recognized.

Milvidskiy Law Group P.C. plans for clients with bank accounts, investment portfolios, real estate, business interests, pensions, and trusts outside the United States. We handle the U.S. side, coordinate with counsel abroad on the local side, and design the plan so that the two fit.

The Assets and Their Issues

Foreign bank and investment accounts

Accounts at foreign financial institutions are reported annually to the Treasury when their aggregate value exceeds $10,000 at any time in the year, and again on a statement attached to the income tax return when the value of specified foreign financial assets exceeds $50,000 at year end or $75,000 at any time for a single filer living in the United States, $100,000 and $150,000 for a married couple filing jointly, and $200,000 and $300,000 for a single filer, or $400,000 and $600,000 for a couple, living abroad.

The income is taxed in the United States, with a credit for foreign tax paid. Foreign mutual funds and similar pooled investments are taxed under rules that can create significant tax costs for a U.S. person, and the plan often replaces them.

At death, the accounts pass under the law of the country where they are held unless a U.S. instrument is recognized, and the executor will need to satisfy that institution’s requirements, which may include a local grant of probate.

Foreign real estate

Overseas real estate is governed by the law of the country where it sits. Directly held foreign real estate is generally not a reportable financial asset, but rental income is taxed here and the accounts that receive it are reportable. A U.S. revocable trust may not be able to hold the property, forced heirship may override a U.S. will, and a local will, a local entity, or a choice-of-law election may be required.

Foreign business interests

A U.S. person who owns a controlling interest in a foreign corporation reports it annually and may be taxed currently on the company’s income whether or not it is distributed. Interests in foreign partnerships have parallel reporting. The value of the interest is included in the U.S. estate at death, and the succession of the interest is governed by the company’s constituting documents and the law of its country. Business succession planning addresses the structure of the entity, the tax regime it falls under, the succession of control, and the coordination of the U.S. estate plan with the shareholders’ agreement or its local equivalent.

Foreign pensions and insurance

Foreign retirement plans and life insurance policies may be taxed differently here from the way they are taxed at home, may be treated as foreign trusts for reporting purposes, and may not pass by beneficiary designation the way U.S. accounts do. Treaties with some countries address pensions specifically. The plan identifies how each arrangement is treated and whether the designations and documents on file at the foreign institution match the U.S. plan.

Foreign trusts

A U.S. person who is the settlor, a beneficiary, or a trustee of a foreign trust has annual reporting obligations, and the trust may be treated as owned by the U.S. settlor for income tax. Distributions to a U.S. beneficiary of income the trust accumulated in earlier years are taxed with an interest charge that can consume much of the distribution. Foreign trusts that were sensible when settled abroad are often restructured, domesticated, or wound up once a U.S. person is involved, and trust modification or trust decanting may be available once a trust is here.

Estate Tax in Two Countries

The U.S. estate of a citizen or domiciliary includes foreign assets at their value at death, with a $15,000,000 exemption in 2026. The country where the assets sit may impose its own estate or inheritance tax, sometimes on the heir rather than the estate, sometimes at rates that depend on the heir’s relationship to the decedent.

U.S. law allows a credit for foreign death taxes paid on foreign property, and estate tax treaties with fifteen countries, including Canada, France, Germany, Italy, Japan, and the United Kingdom, allocate taxing rights and provide further relief, but the credit is limited and the treaties are few.

The plan estimates the combined tax, considers whether the assets should be held differently, whether lifetime transfers make sense under both systems, and whether the U.S. exemption and the foreign rules can be used together. Our estate tax planning attorneys handle the U.S. side.

Succession in Two Countries

The estate plan for a client with foreign assets typically includes a U.S. will or revocable trust for U.S. assets and, depending on the country, either a provision extending the U.S. instrument to foreign assets or a separate local will limited to the assets in that country. Where a local will is used, the two documents are drafted together so that neither revokes the other, the executors are coordinated, and tax clauses do not conflict.

Where the foreign country is a member of the European Union that applies the succession regulation, a U.S. citizen can elect in a will to have the law of their nationality govern the succession, which can avoid forced heirship, subject to confirmation with local counsel.

The documents that will be used abroad are executed with the formalities that country requires, including notarization, apostille or consular authentication, and translation. After a death, the executor will often need a local proceeding to collect the foreign assets, and we coordinate that with the U.S. probate through our probate and estate administration practice.

Reporting Compliance and Overdue Filings

Unreported foreign accounts, companies, or trusts may come to light during estate planning. The IRS has procedures that can reduce or eliminate penalties for taxpayers whose failure to file was not willful. The appropriate procedure depends on the facts and whether tax was underpaid. We address outstanding reporting with the client’s accountant before completing the estate plan, so those obligations are not left for the executor.

What Our Planning With Foreign Assets Service Includes

• An inventory of foreign assets with the U.S. income tax, estate tax, and reporting treatment of each.
• Review of reporting compliance and coordination of any catch-up filings with the accountant.
• Review and restructuring of foreign investments, entities, and trusts where U.S. tax costs or reporting obligations warrant a different arrangement.
• U.S. wills and trusts drafted to address foreign assets, and coordination with local counsel on separate wills, choice-of-law elections, and local entities.
• Estimation of combined U.S. and foreign death taxes and planning to reduce them under both systems.
• Review of foreign pension, insurance, and account designations against the U.S. plan.
• Execution and authentication of documents for use abroad.
• Coordination with our cross-border estate planning and tax planning attorneys, and with the client’s advisors in each country.

Coordinating With Foreign Counsel

Our attorneys advise on U.S. federal and state law and do not give advice on the law of other countries. Where a plan depends on foreign law, we identify the questions, work with counsel in that country, and integrate their answers. We prepare the U.S. estate plan and coordinate the information returns; the returns themselves are filed by the client’s accountant.

Discuss Your Foreign Assets

If you own accounts, property, a business, a pension, or an interest in a trust outside the United States, bring a list of the assets by country, your recent tax returns and information returns, and any wills or documents you have signed abroad. Our attorneys practice in New York, New Jersey, and Connecticut. Contact Milvidskiy Law Group P.C. to schedule a consultation.

This page is provided for general informational purposes only and does not constitute legal advice. Laws differ by state and change over time. For advice about your situation, consult a qualified attorney.