How Should I Leave Assets to a Beneficiary in Another Country?

 In Non-US Citizens

Question:

My question relates to Non-Resident Aliens (not a spouse).  I am 71 years old, a US citizen, and a resident of Florida. I am and always have been single. I have approximately one million dollars in assets: $160,000 bank $840,000 in stocks and mutual funds, 50% in TOD, 40% in Roth IRA, 10% in Trad. IRA and no debts. I would like to leave 50% of my assets to siblings and their children who live in Massachusetts and 50% to my friend in the Dominican Republic, who has no association with the U.S. whatsoever. Please assess my personal situation, especially regarding the NRA and tax liabilities which may (or may not) exist in a trust, which I intend to establish.

Florida-Domican-Republic-probate-estate-planning-attorney-Wellesley-MA

Photo by Justin Aikin on Unsplash

Response:

The fact that your estate is under the federal tax threshold, now of $11.7 million (as of 2021) and that there’s no estate tax in Florida, means that there’s no estate tax issues, even though half of your estate will go to a non-U.S. citizen. I would, however, not make your friend a beneficiary of your traditional IRA in order to keep her out of the U.S. tax system. The Roth IRA should not be a problem since withdrawals are not taxable.

The problem may be how investment houses deal with non-residents, whether or not they are U.S. citizens. As it happens, I’m trustee of a trust, the beneficiary of which now lives in the Dominican Republic. Fidelity, which holds the trust assets, will no longer permit me to change the investments in her trust. They must stay as they are.  While we often urge clients to use trusts to avoid probate and for ease of management, it may work better in your case for your estate to go through probate and simply have half the proceeds distributed to your friend. I would check with the company or companies where you have your investments to see what their policies are. Of course, even this is not foolproof, because they could always change their policies, as has been our experience with Fidelity.

 

Related Articles:

Can Non-US Citizens be Beneficiaries of a Trust?

Problems with Non-US Owners of US Investment Accounts

Showing 29 comments
  • stela jhane berayon
    Reply

    i have a US friend from Tampa Florida who was died recently last February 7,2020 but before he died he ask my sss number wich is (SOCIAL SECURITY SYSTEM) in Philippines and added me as his beneficiary .i dont know what to do now or i dont know where to reach out yes he know my full name and address but i dont know who will contant me and whom to reach out. i dont even know the name of the company

    should i wait here that someone in the company will reaching me out? or does the company make an action to reach me if im really the beneficiary?

      • Harry Margolis
        Reply

        Dear Ms. Berayon,
        I’m sorry, but I am unaware of any Social Security benefit that can be assigned to a beneficiary other than a dependent or disabled child or a surviving spouse. Are you sure your friend was talking about Social Security and not something else?

      • charles dizon
        Reply

        We are a retired couple having two adult kids. we have assigned our inheritance to them, but can i add a beneficiary who is not a US citizen; non resident but is a philippine citizen living in the philippines

          • Harry Margolis
            Reply

            Dear Mr. Dizon,
            Probably yes, but it can get a bit complicated. By “assigning our inheritance,” I’m going to assume you’re naming them as beneficiaries on your accounts. That’s fine legally, but some financial institutions make it very difficult for non-U.S. residents (citizenship doesn’t seem to matter) to get access to the accounts. It might make more sense to use a revocable trust with a U.S.-based trustee. But I’d check with the financial institution to be certain.

          • William
            Reply

            I currently reside in the country of Guatemala,my mother lives in the United States,and wants to place me as the sole beneficiary to her bank accounts.how would that work. I have a bank account here will those funds just be transferred to me automatically?

              • Harry Margolis
                Reply

                Dear William,
                My answer to your question is the same as my answer to Mr. Dizon above. That should work, but I’d check with the bank to be sure. Some of them can be very difficult, but others not. Our experience is that banks are often easier to work with then large financial institutions, such as Fidelity.

              • Mary
                Reply

                Good evening,

                My mother is a US citizen, living in Illinois; I am living in Ireland and am not a citizen. She would like to leave me her bank account balance and my deceased fathers pension who I believe is Invested with Fidelity. It would be much less than the federal threshold mentioned above. Will there be any tax implications (state or otherwise due to me being a non-citizen) or issues with me receiving it?

                Thank you,
                Mary

                  • Harry Margolis
                    Reply

                    Mary,
                    The United States only taxes estates, not inheritances. Or in other words, they tax the money going out, not coming in, meaning if your mother were not a citizen there might be a tax but your citizenship is irrelevant. So, not to worry. However, Fidelity and other investment houses can be a pain in the neck in terms of non-residents holding accounts. Just selling the funds and closing the account may be fine, but they probably wouldn’t let you continue to hold the account and manage the investments. In any case, I’d encourage your mother to check with Fidelity on how this would work.

                  • Eve
                    Reply

                    I would like put a house I just recently inherited in a living trust I am going to set up. I would like to give each of my 3 children (US Citizens) 30% interest as the beneficiary and 10% to my brother who is not a US Citizen. How would that work? is there anything I need to consider, any disadvantage in adding my brother as a non-US Citizen beneficiary?

                      • Harry Margolis
                        Reply

                        Eve,
                        That should work fine. I can’t think of any disadvantage or problems with including your brother as a beneficiary.

                      • Eve
                        Reply

                        Thank you Harry. One more question, will be there a problem assigning my brother as the trustee (as a foreign national)? any tax/estate implication to appoint a non-citizen trustee?

                        • Kim Campassi
                          Reply

                          Harry I have a similar situation to those above. I’m a US citizen but my beneficiaries are all Australian citizens. If I understand correctly, my estate will not be subject to any tax (value is under the exemption) and neither would my Australian beneficiaries. Is this correct? So then, is the only possible issue how the Australian government handles an inheritance and whether they would be subject to taxes there?

                            • Harry Margolis
                              Reply

                              Kim,
                              That’s all correct. The only thing I’d add is that some investment houses can be difficult with beneficiaries outside of the country making it a bit difficult to transfer the funds. One way to make this work better is to create a revocable trust with an American trustee. Then she would have access to the accounts and would be able to make the transfer, and also avoid probate at the same time.

                            • Lynn
                              Reply

                              I am an American citizen with no children. I want to marry a Frenchman and live in France. I want to leave my estate to my niece in a will. Can my French husband inherit my estate if I die before he does?

                                • Harry Margolis
                                  Reply

                                  Lynn,
                                  C’est une question interesante. Unlike the United States, France has forced heirship giving your spouse a portion of your estate. However, even in the United States the all states give spouses rights to “elect” against the will, in which case they receive a portion of the deceased spouse’s estate. So it’s actually not that different for spouses (though it is for children, who have heirship rights in France but none in the U.S.). In the U.S., a renuptial agreement can trump any spousal rights. I’m not sure if that’s the case in France. It may help to state in your will that you want it to be carried out under U.S. law, or that of the state in which you reside today. In any case, I’d recommend consulting with a notaire in France to sort this all out.
                                  Bonne chance!

                                • Andy White
                                  Reply

                                  Hi I’m a US citizen and want to leave my entire estate for a friend in Trinidad. Does she need to pay taxes have a social or can she just collect it free and clear. My assets includes money and property.

                                  Thank you I’m advance.

                                    • Harry Margolis
                                      Reply

                                      Andy,
                                      She should be able to collect everything free and clear. There would be no taxes other than those your estate would pay passing to an American citizen. She would need to obtain a tax ID number if she were to maintain an account in the United States.

                                    • Sam Aoukar
                                      Reply

                                      I am 70 years old I lam in NEW YORk I have house in France l like to give this house to my son With way safe way to give him this house under his name

                                        • Harry Margolis
                                          Reply

                                          Sam,
                                          I believe there’s no bar to your giving your house in France to your son, either now or at your death through a will. However, if you plan to do so at death, I would recommend executing a French will as well as one in New York. In either case, I’d recommend working with a notaire in France. Bon chance!

                                        • Max Bond
                                          Reply

                                          Hi Harry,

                                          Thank you very much for taking the time write this post. What happens if I wish to split financial assets worth just slightly more than the federal tax threshold among non-relative, non-US citizens residing in Romania and the Czech Republic? Neither party is set to receive anything near the federal tax threshold.

                                            • Harry Margolis
                                              Reply

                                              Max,
                                              It’s no different than if you were giving the amounts to U.S. citizens in the United States. I’m assuming you’re talking about gifts at death, so if your total estate is below the threshold, currently $11.7 million, there will be no federal estate tax.

                                            • Sue
                                              Reply

                                              Dear Harry,

                                              Good afternoon,

                                              I am reaching out to you with a couple of questions:

                                              I am a Dutch citizen resident in the Netherlands, and I am expecting an inheritance from the USA. The funds have been left to me by my late father, and will be sent to me by the trustee of the trust he created in the US.

                                              According to Dutch law, I do not need to pay inheritance tax, since the deceased person was a US citizen, and never lived in the Netherlands/is not a Dutch citizen.

                                              My questions are:
                                              1. Does any tax need to be paid or withheld in the US on my inheritance amount? (around $350,000 USD)

                                              2.) What are the existing tax treaties between the US and the Netherlands with regard to Dutch citizens receiving an inheritance from the US?

                                              3.) I have been asked today to fill in and send a W-9 form by the trustee in the US. I was told that he needs this completed form from me, before a distribution can be made to me. However, it is clear that this W-9 Form can be used by US citizens only,and needs to be certified as such. Therefore, which form, or documents, if any, should I be sending as a Dutch citizen / individual?

                                              If you could please help answer the above I would very much appreciate it!

                                              Thank you so much!
                                              Sincerely,
                                              Sue

                                                • Harry Margolis
                                                  Reply

                                                  Sue,
                                                  I can answer some of your questions and not others.
                                                  1. There is no inheritance or estate tax on this amount. However, income may pass through to you as a beneficiary depending on the nature of the assets. For instance, if they are retirement funds, their liquidation would be a taxable event. In that case, some funds might be withheld. Otherwise, no funds will be withheld.
                                                  2. I don’t know anything about tax treaties, but I’d be surprised if they would be necessary since its unlikely that your inheritance will be subject to taxation.
                                                  3. I also don’t know about other forms you might fill out. If you happen to have a U.S. Social Security number, I’d advise simply filling out the W-9 form. If you don’t, that’s problematic. The trustee is going to have to figure out how to get you the money to which you’re entitled, so I’d hand the problem back to them.

                                                    • Sue
                                                      Reply

                                                      Dear Harry,
                                                      I am grateful for your swift and helpful reply.

                                                      Just to clarify, State Taxes as well as Federal Taxes have been paid from the trust annually. So, as you state, I do not expect any further amounts to be charged/withheld.

                                                      Excellent advice to hand the problem right back to the trustee, since it is the fiduciary duty of the trustee to send me the funds to which I’m entitled.

                                                      Again, thank you for answering, appreciate it!

                                                      • Sue
                                                        Reply

                                                        Dear Harry,

                                                        I’ve now been asked to fill in Form W-8BEN, which is Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting for Individuals.

                                                        In going through the form and the separate instruction sheets, it seems to me that this form is to be filled in ONLY when payments are subject to chapter 3 or chapter 4 withholding.

                                                        If I only need to establish my Foreign Status, then I believe a passport copy should be sufficient to establish that?

                                                        I have not been told what the purpose is for which they are asking me to fill in Form W-8BEN, so that is unclear. Most of the form cannot be filled in by me, since it relates to income that is subject to chapter 3 and chapter 4 withholding, tax treaties etc. So I am finding this very confusing.

                                                        You have stated in your previous response that the amount I am expecting does not require inheritance or estate tax, or withholding.

                                                        I would be very grateful if you could please have a quick look at the form and let me know if this applies to me, or not? Here is the link: https://www.irs.gov/pub/irs-pdf/iw8ben.pdf

                                                        Kind regards,
                                                        Sue

                                                          • Sue
                                                            Reply

                                                            Harry,
                                                            Here is the correct link to the W-8BEN form. https://www.irs.gov/pub/irs-pdf/fw8ben.pdf
                                                            The previous one was a link to the instructions for form W-8BEN.
                                                            Many thanks,
                                                            Sue

                                                              • Harry Margolis

                                                                Sue,
                                                                That looks good, but this is getting a bit beyond my expertise. An accountant should be able to tell you for certain.

                                                        • Sue
                                                          Reply

                                                          Harry, here is the form W-8BEN. https://www.irs.gov/pub/irs-pdf/fw8ben.pdf
                                                          The previous link I sent were the instructions for form W-8BEN.

                                                          Sincerely,
                                                          Sue

                                                          • Sue
                                                            Reply

                                                            Thank you Harry, I understand!
                                                            Have a great day!
                                                            Best wishes,
                                                            Sue

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