When your family includes non-U.S. citizens and you want to make them beneficiaries, trustees, or executors for your estate, you need to talk to an estate planning professional immediately. Unfortunately, United States laws concerning non-citizens may lead to difficulties and unexpected expenses for your estate and relatives if you name them in fiduciary positions.
If you plan to name a non-U.S. citizen and non-resident as a beneficiary to your trust or an heir to your estate, be aware that there could be financial consequences. For one, trusts must withhold 30 percent of distributions to foreign beneficiaries for tax purposes, which results in the beneficiaries receiving a lot less per distribution.
While you can choose a non-citizen trustee, you should look for someone who is, at minimum, a resident of the United States to be your trust’s fiduciary. You want to avoid the risk of your trust being classified as a foreign trust for federal or California tax purposes. If your trustee is a non-citizen and does not have residency in the United States or California, your trust may be a foreign trust upon formation. If your trustee lives here but moves outside the United States, your trust may change from a domestic to a foreign trust. Both will cost the trust money in excess taxes.
When the trust becomes a foreign trust, the trust will owe capital gains tax on each asset in the trust if its fair market value exceeds its adjusted cost basis. (Internal Revenue Code § 684.) The trust will owe other special taxes as well.
Technically under California law, you could name a non-resident of the United States as your executor and then that person could request that the court appoint him or her to perform executor duties. (Probate Code §§ 8465(a)(2), 8402(a)(4).) Non-citizens who are U.S. residents can be executors too. However, just because you can does not mean you should. If the executor moves out of the country between the time you make your will and your death, it could be a substantial hassle for your relatives to even locate the executor and inform him of his duties.
If all or most of your assets are located in California, someone local and likely to remain in the country would be the best candidate for an executor.
Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience and her certification as a California estate planning and probate specialist by the California State Bar Board of Legal Specialization will give you confidence and peace of mind.
To schedule your own “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.