Laws of succession, inheritance, and estate administration are inherently complex in the U.S. because many of the laws require a thorough understanding, application, and interplay between local, state, and federal law. Additionally, where foreign assets or foreign owners or decedents are involved, the implication of international treaties, processes, and procedures can be very difficult to navigate without professional counsel. Further, the U.S. is known for its increasingly complicated tax laws and recent tax law changes have created further hurdles with achieving the tax reduction, asset transfer, and probate administration goals while remaining in compliance with all the laws, some of which may even seem contradictory.
Intestate succession is significantly more difficult in the U.S. because there is no Will to guide the intent or factor in tax-saving and asset protection strategies that would be accomplished with proper estate planning. Some tax planning can even be accomplished post-mortem, such as establishing trusts for non-citizen spouse (Qualified Domestic Trust or "QDOT") to enable a surviving spouse to maintain a standard of living without being subject to exorbitant estate taxes (at the federal and/or the state levels) immediately upon the spouse’s death. Although the U.S. provides a $11.7 million (adjusted for inflation and reduced to $5 million beginning in 2026) exclusion for estate and gift tax purposes at the federal level, this exclusion amount is significantly reduced to a mere $60,000 for non-citizen or non-resident decedents. The federal estate tax rate is 40%. Therefore, a non-US citizen decedent domiciled abroad, with U.S. assets resulting in a net taxable estate of $1 million could be subject to taxes as high as $400,000.
Additionally, for U.S. citizens residing abroad, the implications are worse. U.S. citizens, regardless of domicile, are taxed on assets located anywhere in the world. Thus, a U.S. Citizen decedent domiciled abroad with no assets in the U.S. but $20 million in assets abroad could be subject to estate taxes as high as $3.32 million even with the $11.7 million exclusion. This situation is especially exasperated where the assets are illiquid, as stakeholder in business enterprises, or the value is in family owned land or property. Family legacies, heritages, and businesses built through decades or even generations may need to be liquidated, in part or whole to cover these taxes. An experienced lawyer can plan to reduce or even eliminate these tax implications through a series of complex trust structures, ownership distribution structuring, and lifetime gifting among other strategies. Even post-mortem, various strategies, such as maximizing the use of disclaimers, coordinating post-mortem planning with estate planning at the beneficiary level to reduce and eliminate negative tax implications can be critical in the administration of the estate.
Very often, individuals secure multiple Wills or estate plans which are too simple and only address domestic assets in each jurisdiction. Most do not address tax implications and there are multiple levels of tax implications if there is any connection to the U.S. Income, estate, gift, inheritance, and other taxes may be implicated. The U.S. is also very particular and imposes significant penalties on failure to report foreign assets or ownerships. These require an advanced level of knowledge with navigating estates with non-U.S. based assets, assets owned in the U.S. by nonresident noncitizens, and foreign assets owned by U.S. citizens. The failure to engage lawyers who understand complexities of U.S. law, international law, and the interplay between the domestic and international law can be extremely detrimental. Additionally, ability of the lawyer to have and collaborate effectively with the counsel in other jurisdictions, especially outside of the U.S. is essential.
The counsel of a U.S. lawyer in conjunction with foreign counsel (the UK, for example, where UK residency or assets are involved) on cross border succession will save significant time, resources, and enable effective succession while preserving intergenerational wealth and family structures as intended.
While the tax issues are complex standing alone, at a more fundamental level, the probate process, that is, the administrative process of transferring assets held in the U.S. or by a U.S. citizen are a series of convoluted, state-specific rules that are very difficult to navigate without proper counsel.
First, where there is a U.S. will, it must be admitted to probate by way of a Petition listing all assets subject to this process and valuation to the Superior Court (or the equivalent) in the state in which the decedent was domiciled and in every state where real estate assets or assets subject to state transfer laws are present. Each state has a different system of succession, applicable laws, fees and taxes and a lawyer familiar and admitted to practice in multiple jurisdictions with close liaisons with counsel abroad can facilitate this process tremendously. Each of the supporting documents for the petitions, such as a certified copy of the death certificate, and even appraisals of value (where the value of the asset is difficult to determine or exceeds a certain threshold as determined by the particular jurisdiction), can be difficult to secure, especially where the decedent’s assets or residency lies abroad.
Next, the probate process requires preparing inventories and appraisals. This process requires careful determination, search, and assessments of every asset or every type, tangible and intangible, domestic and foreign, and timely reporting to prevent penalties and additional assessments. Additionally, for estates subject to estate or inheritance tax, the due date for the tax return is nine months from the date of death. The complexities of these tax returns, the proofs required, the valuation reports, financial records, bank statements, etc. take many months to procure, evaluate, organize, and report. Most of the same documents are also required in the inventory and accounting process for probate.
The Personal Representative of the estate, once the Petition is filed, must then open estate bank accounts and manage all the assets, including liabilities, publish notices to creditors, beneficiaries, manage and file all tax returns, including the decedent’s final income tax returns, generate and follow a distribution schedule to distribute assets to the beneficiary. There may also be tax waivers or proof of tax filings and payments required before any assets can be distributed. The estate account enables the PR to access funds or accounts in the estate to pay expenses, accountant fees, attorney fees, filing fees, costs, and taxes, before being allowed to distribute the balance to the beneficiaries.
In cases where there is no Will, the probate process can be further complicated. The laws of succession or probate rules vary from state to state and if the asset is subject to the laws of one jurisdiction over another, without a Will, the default laws of succession of the applicable jurisdiction would apply. This may result in unintended partial distributions to beneficiaries and loss of a home or business due to limitations on transfers to a surviving spouse.
In the U.S., a person with domicile, for example, in Washington, even if the death is abroad, for example the UK or Spain, would be subject to estate taxes in the U.S. as well as having inheritance taxes imposed on all the property located within the state. Additionally, the probate process would have to begin in Washington with ancillary probates opened in every jurisdiction, be it state or country, outside of the state. The documentation, valuation, legal knowledge, planning, accounting, financial management, and distribution protocols on even the smallest estates of decedents with a U.S. connection, whether by nationality, residency, asset ownership, or beneficiary residency, would be nearly impossible to navigate and complete in an efficient, effective, and tax favorable manner without proper counsel.
We guide our clients every step of the way and take an active role in the administering of the estate so that our clients can focus on their families, business, and other matters, of great concern while we handle the legal implications to ensure a smooth and effective transition of a decedent’s assets. If you have estate or estate planning questions, give us a call at 253.858.5434 to set up an appointment today. We represent clients throughout Washington and Idaho and are available to meet in person, by phone, or via video conference.