Estate planning for international couples often begins the same way it does for everyone else. You’ll still need a will, powers of attorney and health care directives. But when one spouse is not a U.S. citizen, or a couple owns assets in more than one country, the tax rules and legal issues can change in ways that surprise even well-prepared families.That’s the message from Harry Margolis, an estate planning attorney and author of Get Your Ducks in a Row. In an interview, Margolis said most international couples don’t need an entirely different estate plan. They do, however, need to understand how citizenship, residency and foreign property ownership can affect gift taxes, estate taxes and the administration of their estate.The planning becomes even more important for couples considering a move overseas or those who expect to divide their lives between two countries during retirement. A plan that works well in the United States may not produce the same result elsewhere.What This Means for YouIf you or your spouse is not a U.S. citizen, or you own property outside the United States:Review your estate plan with an attorney experienced in international estate planning.Understand the gift tax rules that apply to transfers between spouses when one spouse is not a U.S. citizen.Coordinate estate plans in every country where you own significant assets.Revisit your estate plan before moving abroad.Ask whether a qualified domestic trust (QDOT) may be appropriate if your estate could be subject to federal estate tax.Below is a transcript of the interview with Margolis, edited for brevity and clarity.Does estate planning differ for international couples?Bob Powell: What do international couples need to know about estate planning? Where do you begin?Harry Margolis: Let’s assume a couple is living in the United States and one or both spouses are not U.S. citizens.At one level, estate planning is no different than it is for U.S. citizens. Everyone should have the proper legal documents in place.If someone dies while living in the United States, the same probate and estate administration rules generally apply whether they’re a citizen or not.Likewise, if someone becomes incapacitated, the same planning tools apply, including a durable power of attorney, a trust or, if no planning has been done, a court-appointed guardian or conservator.The legal system generally doesn’t distinguish between citizens and non-citizens for those purposes.Where things begin to change is in tax law.How do gift tax rules differ for non-citizen spouses?Harry Margolis: Under federal law, gifts between spouses who are both U.S. citizens generally qualify for an unlimited marital deduction.When one spouse is not a U.S. citizen, however, different rules apply.There is an annual limit on how much can be transferred to a non-citizen spouse before a federal gift tax return may be required.Most couples will never actually owe gift tax because federal lifetime gift and estate tax exemptions are very high.Still, anyone making significant transfers between spouses should understand that different reporting rules apply when a spouse is not a U.S. citizen.What happens if an international couple leaves the United States?Bob Powell: You mentioned couples living in the United States. What happens if that same couple moves to Spain or Portugal?Harry Margolis: That’s where planning becomes much more complicated.The large federal estate tax exemption generally applies while you’re living in the United States.But if you move back to your country of origin—or another country outside the United States—and still own U.S. assets, the rules can change dramatically.If you’re no longer considered a U.S. resident for estate tax purposes, the estate tax exclusion for U.S.-situated assets can be much smaller.That’s something people need to think carefully about before moving abroad while continuing to own U.S. real estate or investment assets.How should couples handle assets in more than one country?Bob Powell: What if a couple owns property in both countries?Harry Margolis: That’s another common situation.Someone may be living in the United States but still own a home, investment property or bank accounts in another country.You may have an estate plan in the United States, but those foreign assets may be governed by another country’s laws.Related: What Advisors Owe their Clients: Fiduciary Responsibility, Facts, Integrity and TrustMany countries have tax treaties or other agreements that help coordinate estate administration and taxation.Even so, our advice is to consult an attorney—or, in some countries, a notary or notaire—in the country where those assets are located.Ideally, you’ll have estate planning documents in both countries that work together.That way, your family won’t have to rely solely on a U.S. will to administer property located overseas.Why might trusts not work the same way outside the United States?Harry Margolis: Trusts are a common estate planning tool in the United States.They’re also widely used in England.But many other countries either don’t recognize trusts or treat them very differently under their legal systems.That’s another reason it’s important to have coordinated estate planning in each country where you own significant assets.When is a qualified domestic trust needed?Bob Powell: It sounds complicated, but not insurmountable.Harry Margolis: That’s right.If you have a particularly large estate, though, you should work with an estate planning attorney who regularly handles high-net-worth and international matters.One important consideration is that you generally can’t rely on the same marital deduction planning available to couples when both spouses are U.S. citizens.Instead, some families may need what’s called a qualified domestic trust, or QDOT.A QDOT is a specialized trust designed to defer certain federal estate taxes when assets pass to a surviving spouse who is not a U.S. citizen.For couples with estates large enough to trigger estate tax concerns, it can be an important planning tool.Key TakeawaysBasic estate planning documents remain essential for international couples.Gift tax rules differ when one spouse is not a U.S. citizen, even if no tax is ultimately owed.Moving abroad while keeping U.S. assets can change estate tax treatment.Coordinate estate plans in every country where you own significant property.High-net-worth international couples should ask whether a QDOT or other specialized planning tools are appropriate.Related: Charles Schwab warns Americans on major estate planning problem
Estate Planning for International Couples: Harry Margolis Explains Cross-Border Planning
