California Probate - Law Offices of Janet Brewer Blog

French Family Members Living in the U.S.? What You Need to Know

If you live in France but have French family members living in the U.S., you need to take care in your estate planning. You may be familiar with the French forced heirship laws, but owning property in the United States is different.

What Is the Forced Heirship System?

France has different estate distribution laws that states in America do. Under the French forced heirship system, who gets which property when you die is based on strict rules. For example, your spouse receives a specific percentage of your estate if you are married. Children of the deceased person receive proportionate amounts of the estate. In France, many people do not have a will because the law explicitly states who receives which assets and in which proportions.

Why Does Having Family Members in the United States Matter?

If you live in France and have a child or close family member living in the United States, you may need to do more estate planning than relying on forced heirship. Under current law, estate property is distributed under the laws of the country where the deceased person was a resident at death.

This means that if you own property in the United States (perhaps after purchasing it to provide your child with a place to live), that property will get distributed according to forced heirship. It will not automatically go to the child who lives in it. Fortunately, you can get around these default rules by making a will that specifies who will inherit the U.S. property.

In addition, the United States property will be taxed not under French law, but under U.S. estate and gift tax law. Non-resident aliens’ estates could pay exorbitant U.S. estate taxes in the hundreds of thousands of dollars depending on the U.S. property’s value. You need to plan ahead for these taxes, perhaps by placing the property in a holding company or by transferring ownership to a trust.

International estate planning requires a lawyer very familiar with the issues described above. Do not rely on pre-printed forms, the default French forced heirship laws, or a lawyer unfamiliar with U.S. estate and gift tax laws. You could be making a costly mistake.

Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

Supporting Your Child with Investment Property

If you are a non-resident of the United States supporting your child with income from a U.S. investment property, you need to start estate planning now. Owning real estate in California’ hot market can be a great investment strategy. But U.S. estate and gift taxes could impose an onerous burden on your family if you do not plan ahead.

Are the Taxes You Could Owe Really that Expensive?

Yes. U.S. estate and gift tax laws are different than you may be familiar with from other countries. Here, the estates of non-residents (those with no green card) pay an expensive estate tax on U.S. property. The exemption amount before you start paying estate taxes is only $60,000 for non-resident aliens. That means the $1.5 million property you purchase as an investment could trigger up to $495,000 in estate tax.

Given the Tax Risk, How Can You Support Your Child with Investment Property?

Many people living outside the United States want to purchase real estate here, either as an investment to give to their children later or as a place for their child to live while studying here. The key to avoiding the exorbitant taxes described above is planning with an attorney who can tailor legal documents to your unique situation.

You may have heard that you should set up a revocable trust or an LLC to hold the property you purchase. You may have tried filling out legal forms that you downloaded from the Internet, or purchasing a prepaid legal plan. This is not a substitute for real legal advice about how to own the property, avoid high tax bills, and benefit your child.

A lawyer can advise you about how to own the property, which might be by individual ownership or by setting up:

• A pass-through entity (limited liability company or partnership);
• A U.S. corporation;
• A foreign corporation;
• A foreign trust; or
• A real estate holding company.

The choice of entity should take into account possible income tax liability, as well as estate and gift taxes. It should also take into account what you want to do with the property in the future.

Want to purchase an investment property in the U.S. as a non-resident? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

It's already February! The New Year Is a Good Time for Estate Plan Review

Don’t limit your attention to your investment portfolio. Include a fresh look at your estate plan.

Your estate plan is really important and that is why you did it in the first place. Don’t let it get out of date, so take a fresh look at any changes in your life that have taken place over the previous year, according to Wealth Management in “Eight Simple Estate Planning Review Items for 2019.”

Here are the eight items that need your attention:

Beneficiary designations. When was the last time you checked these? Beneficiary designations are usually looked at when an account is opened, and often that’s the last time people see them. Look at beneficiary designations for tangible assets, like homes, cars or collectibles. Check legal documents including bank accounts and insurance policies.

Digital asset designations. This is a relatively new area, but very important. Even if you don’t own any cryptocurrency, chances are good you have assets like photos, reward points, websites and more. Each social media platform has a different policy for how accounts are treated on the death of the owner.

Trust funding. This is where many estate plans fall apart. Funding trusts often requires changing titles on bank accounts, homes and other assets into the name of the trust. Major purchases, like a boat or second home, also need to have their titling corrected, so they correspond to trusts.

Documents for adult children. When your children turn 18, they are legally adults and you do not have the legal right to get information or make decisions on their behalf. If you don’t have HIPAA releases, Power of Attorney, and other documents, you may find yourself unable to help in an emergency.

Keep up with life changes. Review your estate plan with an eye to changes in your life: births, deaths, marriages, divorces, big purchases, etc. If you haven’t met with your estate planning attorney or had a phone conversation in a few years, make an appointment now for a review.

Secure photos and memories. How many times have we watched dramatic images of fires, floods, and earthquakes in 2018? Videos, photos, family heirlooms, and artifacts and other irreplaceable items should be stored in some digital format, or in the cloud. If the family includes artists, take photos of paintings or sculptures so at least you have an image of the item should it be destroyed.

Discuss wishes with loved ones. One of the biggest challenges after someone passes, is knowing what they wanted to be done with personal possessions. If you have every Beatles album, unopened, what do you want to happen to your collection? Make inventories and then tell your family what you’d like to have happen with your possessions. You can create a “Legacy Letter” and put it down on paper.

Prepare for incapacity. This is not everyone’s favorite task, but necessary. If you were conscious but not able to speak, what information would your family need? Work with your estate planning attorney to create the necessary legal documents, including medical directives.

Reference: Wealth Management (Dec. 12, 2018) “Eight Simple Estate Planning Review Items for 2019”

Do You Need a U.S. Estate Plan If You Move Out of the Country?

If you move outside the United States, you may still need an estate plan that is legally effective here. The reasons why turn on complicated IRS and state tax rules.

When people move internationally, sometimes they leave property or obligations behind. U.S. property could include:

• Bank accounts
• Real estate
• Debts
• Items in a storage unit
• Family members
• Child support requirements
• U.S. stocks and bonds
• Retirement accounts and life insurance

The IRS taxes people who are U.S. citizens whether they live in the United States or not. It also taxes people who have property located in the United States or who work here and take advantage of its laws. If you spend any amount of time in the U.S. during a year, you will need to pay taxes on your income. Even if you move outside the U.S. and do not return, you may still have some ties here that will lead to taxes. These taxes could include estate taxes if you pass away while you own property here and are still domiciled here.

In particular, U.S. citizens should consider the relatives they leave behind. If you are creating an estate plan in your new country, will its laws allow your relative to collect an inheritance? Will you owe gift taxes in the U.S. this year, or will your estate have a large estate tax bill in the future? Your new country may have laws that affect your ability to send or receive money from the U.S. For example, some countries have different estate and gift tax laws that affect your ability to give money to people in other countries. Others have treaties with the United States that will affect estate planning and taxes.

If you are planning an international move or have just moved but have significant connections to the U.S., you probably have a lot of questions about the issues discussed above. These are all questions that a U.S. lawyer with experience in international estate planning can help you address. You also may need a lawyer in your new country to help you navigate its laws and make plans for property located there.

Owning property or earning income in the United States could lead to the need for an estate plan that takes into account U.S. law — especially tax and property law. You may feel like you leave a whole world behind when you moved, but your ties to the U.S. could be stronger than you think.

Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

Snowbirds May Want to Consider a Checklist

Heading to a warm climate is a good idea but perhaps it is best to consider legal issues before leaving.

If you are a retiree who heads south after the holidays, it might be wise to create a checklist of at least four personal legal business items, according to LimaOhio.com in “Extra checklist before heading south for the winter.”

First, make sure that your general/financial power of attorney and healthcare power of attorney documents have been updated. Does your family have copies of these documents? Or do they have 24/7 access through a portal from your estate planning law firm?

Some law firms provide laminated cards for clients to give to family and friends that gives the holders of the cards access to these powers, while clients are out of town. Others are starting to use encrypted thumb drives, so that clients have documents wherever they go. Make sure you have these documents and that the people who will need them, either have them or can get them in a moment’s notice.

Second, review your living will with your estate planning attorney. Update them if changes need to be made and get copies to your children and/or friends.

Third, make sure that your last will and testament is updated. Have you had any big changes in your life since the last time it was reviewed? Marriages, deaths, divorces, births and adoptions are the typical “trigger” events that signal a need for review. Who will have that document? If your estate planning attorney maintains original copies for clients, then make sure to have another original on your person or safely secured with a loved one.

Lastly, and this takes a little time but is well worth doing, create a list of all your assets. Make sure they are properly titled for your situation. Should you have all your bank accounts become Payable on Death to your spouse? When was the last time you checked your beneficiary designations? Chances are good there are beneficiary designations on your bank, investment, and retirement accounts and on your life insurance policies. Wherever you have a beneficiary designation, you should also have a contingency beneficiary.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and may include a trip in a southerly direction. Please contact our office if you need any assistance with your estate plan today.

Reference: LimaOhio.com (Oct. 13, 2018) “Extra checklist before heading south for the winter”

Can You Make Gifts of Money and Property to Non-Citizen, Non-Resident Relatives?

If you are planning to make gifts of money and property to non-citizen, non-resident relatives, you should check on the tax laws that will apply. These kinds of gifts are very common, especially when families move to the United States and not everyone has resident status. When you are unfamiliar with the tax laws, you may end up owing more money than you expect to the IRS due to U.S. withholding rules.

Lifetime Gifts

If you give your relatives money or property during your lifetime, watch out for gift tax exemption and yearly giving limits. U.S. citizens, permanent residents, and non-citizen non-residents can give up to $15,000 every year without paying gift tax. Transferring property to non-citizen relatives may have tax consequences too – particularly for income-producing properties.

Inheritances and Bequests

If you plan to make your gifts as inheritances – meaning gifts that the recipients inherit at your death – keep a few things in mind. Cash gifts should be straightforward because the executor or trustee can send it directly to the recipient. But if the gifts are stock, bonds, or other investment vehicles that have accrued interest, dividends, or capital gains, it is more complicated. The executor or trustee will have to withhold 30% (thirty percent) of the income before your relatives receive anything. This is to account for taxes that will be due on the interest, dividends, capital gains, or rents.

If the gift is real estate, the executor or trustee and the recipient have to comply with FIRTPA, the Foreign Investment in Real Property Tax Act. This U.S. law requires withholding of 15% in most real estate transactions when a foreign person disposes of a U.S. real property interest, including a gift transfer. Depending on the value of the gift, this withholding could be substantial. 

For any of these gifts, the non-citizen non-resident relative may need to get an international taxpayer identification number (ITIN) before the executor or trustee can send the gift to them. Some people can simply mail in proof of identity and other documents to get an ITIN. People located in the United States can visit an IRS Taxpayer Assistance Center. But sometimes it is extraordinarily difficult for the gift recipient to get an ITIN. If the recipient lives outside the United States it could take months. People in rural locations, poor health, or who are older may have trouble getting the needed proof of identity and documents, locating a suitable Certified Acceptance Agent, and traveling there. In addition, many older ITINs will expire at the end of 2018, and holders will need to complete a renewal process. This means more paperwork and time to allow a relative to receive a gift.

Are you planning to give gifts of money or property to relatives? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

Non-Citizens Spouses’ Community Property: Why It Matters for Estate Planning

Which assets are community property and which are separate property can become very important when a non-U.S. citizen and a citizen are making estate plans. The previous blog discussed the difference between these two types of property. Now we will delve into the reason why a non-citizen and citizen couple should try to own as much of their property as possible as community property.

A non-citizen and citizen married couple share their estate and gift tax exemption amounts as to community property only. U.S. citizens and permanent residents have much larger allowable exemptions than non-citizen, non-residents ($11.18 million compared to $60,000). With the ability to use the combined exemption on community property only, a non-citizen surviving spouse will pay lower taxes if more of the couple’s property belongs to the community. If the surviving spouse inherits the separate property, he or she could owe many thousands in taxes.

Often, these couples place some property in a qualified domestic trust (QDOT), either during their lifetime or upon the death of the U.S. citizen spouse. The estate of the deceased spouse does not have to pay estate taxes on property that goes to a QDOT on their death, because the property is no longer part of the estate. The QDOT also postpones the surviving non-citizen spouse’s need to pay taxes. Another option with a similar result is a “bypass trust”.

At the beginning of 2018, the estate and gift tax exemption for citizens doubled. This increase expires in 2026. While the increase makes running out of exemption dollars less of a problem for a non-citizen spouse, couples still may want to set up a QDOT or bypass trust. The increase could expire before one of them passes away. Further, couples should still maximize the amount of property considered community property, if possible.

In California, real estate can be owned as community property with rights of survivorship or joint tenancy. The two are very similar – in both cases, the spouses own the property jointly and one owns the entire property when the other passes away. While both of these ownership methods avoid probate (because the property automatically goes to the surviving spouse), they can trigger the requirement that the estate file an estate tax return if the citizen spouse dies first.

Depending on which kinds of property you own and if it is separate or community property, you may have different estate planning needs as a citizen and non-citizen couple. If you are interested in setting up a QDOT or learning more about any of the topics discussed here, reach out to an estate planning attorney experienced with non-citizen planning issues.

Are you a non-U.S. citizen planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

Retirees Living Abroad May Face IRS Penalties

Some Americans want to hide money abroad, while other Americans just want to live there. Either way, be aware of FATCA and the IRS.

Retirees who would like to live abroad in European countries or other nations, should carefully consider the law enacted by Congress to enforce financial compliance by Americans with assets abroad, according to CNBC in “How to retire overseas and avoid IRS penalties.”  The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010.

FATCA works through what is called “dual reporting.” Other countries agree to report on assets owned by American account holders. Those living outside of the U.S. must report honestly what they have in those foreign bank accounts every year, when they file their income taxes.

For people who are not big-time tax evaders hiding large amounts of money offshore and make an honest mistake, it can become a nightmare.

One client forgot to tell his accountant about an account with $3,500 that he owned in a foreign bank. The penalties were stiff. An attorney who was experienced in tax situations faced by people living outside of the U.S. had to be retained.

Here’s the thing: most automated tax preparation programs default to answering “No” on Schedule B, where the person filling out the form is asked if they have a bank account in a foreign country.

Who has to file? All Americans living overseas are required to file a tax return. It doesn’t matter if you pay foreign taxes, or even if the U.S. has a tax treaty with the country.

In addition to a 1040 form, you must file additional forms for the foreign earned income exclusion or the foreign tax credit form.

The only exception might be if you receive Social Security benefits and have no other income sources. That is a “might,” though—check with your CPA!

Some people choose to retire outside of the U.S., in the hope of keeping healthcare costs manageable.  However, any gains from having lower healthcare costs would evaporate quickly in the face of tax penalties from the IRS.

Be certain to work with a CPA who has experience in overseas tax requirements and FBAR rules (Report of Foreign Bank and Financial Accounts).

Reference: CNBC (Aug. 25, 2018) “How to retire overseas and avoid IRS penalties”

Can You Name a Non-Citizen as Beneficiary of a Retirement Account?

When you have internationally located family members or non-U.S. citizen relatives, you may want to make one a beneficiary of your U.S.-based retirement account. You probably already have an idea of the different tax issues faced by non-U.S. citizens, so making your beneficiary designation will raise questions about whether it is a good idea.

First, it is possible to name a non-U.S. citizen as a retirement account beneficiary. The retirement account could be an IRA, a 401(k), or a similar account. When you make the designation, the account administrator may need more information about whether the beneficiary is a “U.S. person” or a “foreign person” for United States tax purposes. U.S. persons include citizens, residents, estates of citizens, domestic trusts, and domestic business organizations. Foreign persons include nonresident aliens, foreign estates, foreign trusts, and foreign business organizations.

If the administrator determines that your beneficiary is a foreign person, it will withhold 30% of retirement plan distributions to that person to pay taxes. To show that a beneficiary is a resident rather than a foreign person, you may need to provide additional documentation to the administrator. Further, you may be able to avoid the 30% rate if the beneficiary is a citizen of a country that has a tax treaty with the United States.

That 30% withholding rate can substantially reduce what your beneficiary actually receives from your retirement plan. You and your beneficiary have a few options to work around it. Your beneficiary could decide to disclaim the distributions and allow them to pass to the contingent plan beneficiary (the backup person if the main beneficiary passes away or disclaims distributions). But this might frustrate your original intent in making the designation. Instead, if you want to give the plan distributions to your spouse, you could create a qualified domestic trust and make it the beneficiary.

There may be some other options for you if you want to benefit a non-spouse but do not want the 30% tax rate. An estate planning attorney who is experienced with international families can help you make an informed decision about your beneficiary designation on a retirement account.

Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

International Estate Planning: Why to Get Started Now

When family members come to the United States or purchase property here from abroad, they may put off or avoid estate planning for their assets. Unfortunately, delays in addressing the tax consequences of gifts and purchases made in America can lead to big problems. The truth is, American tax laws may be very different than in other countries, so international estate planning is a must.

Large Tax Bills Now

Due to specific tax laws for non-residents and non-citizens, your lifetime gifts to relatives could cost you or them large tax bills. Making non-residents and non-citizens the co-owners of property, bank accounts, and stock could have the same effect. Calculation of your gift and estate taxes depends on your “domicile”, unlike income taxes, which depend on your “residency”.

Non-resident aliens receive a much lower gift and estate tax exemption than U.S. citizens, only $60,000. As a result, if non-residents make large lifetime gifts that exceed the exemption and then pass away, their estates could owe hundreds of thousands of dollars in estate taxes. Further, U.S. tax law sets a limit on how much money in gifts one person can give to another in one year. If a non-resident alien make a gift of more than $15,000 (the “annual exclusion amount”), he or she is eating into the $60,000 lifetime exclusion and will have to pay gift taxes on the amount over $15,000 just for that tax year.

Large Tax Bills Later

When the estate of a deceased person pays taxes, relatives sorting out finances may discover that the deceased person made some lifetime gifts. If the total of the lifetime gifts and the value of the estate exceed the exemption amount, the estate may owe taxes that could total thousands of dollars.

Some people do not like to talk about end-of-life estate planning or have superstitions about discussing death. Practically speaking, however, your financial transactions in the United States and the estate planning you do here can have an enormous impact on your family’s resources after you pass away. With careful forethought, you can anticipate the large tax bills mentioned above and develop strategies to address them in your estate plan.

What to Do Next for International Estate Planning

If you or a relative have non-citizen status in the United States, and you plan to make gifts, transfer ownership of property, or own property yourself, you need both a good accountant and a good estate planning lawyer. Your estate planning lawyer will help you with issues beyond paying this year’s tax bill. You can get your questions answered about how your residency status will impact gift and estate taxes in your future.

Many lawyers and accountants are not familiar with the estate planning possibilities for people not domiciled in the United States. Seek out a lawyer who has international estate planning experience.

Do you need help with international estate planning? 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 a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.