The most expensive mistakes in international estate planning often occur not because families lack good intentions, but because they fail to understand the tax implications of their decisions. Working with visa holders and international families has repeatedly shown me how a single planning oversight can result in hundreds of thousands—or even millions—in unnecessary taxes.
I was recently invited back to join estate planning attorney Kirsten Howe on Absolute Trust Talk to explore these advanced tax strategies and financial hurdles that international families face. We dove into the stark realities of estate tax disparities, practical banking obstacles that can derail inheritances, and some legitimate planning opportunities that could save substantial money if implemented correctly. We also discussed bureaucratic requirements that most people are unaware of until it’s too late. If you’re working in the US on a visa, managing cross-border assets, or have family overseas, this conversation addresses the analytical thinking needed to protect your wealth from both unnecessary taxation and administrative delays.
Time-stamped Show Notes
0:00 Introduction
1:22 A common scenario in Silicon Valley: Visa holders with stock options and RSUs who need specialized planning approaches.
2:54 Did you know? US citizens enjoy a nearly $14 million exemption, while non-US domiciliaries face estate tax after just $60,000? Here’s what you need to know.
4:56 Start listening now as we discuss why gifts of US stock aren’t subject to gift tax, but the same stock in an estate faces up to a 40% tax at death.
8:53 Next, we talk about the critical distinction between “residence” and “domicile” for tax purposes, and how visa holders can legally utilize this distinction.
11:31 Learn why appointing a foreign trustee can trigger costly “foreign trust rules” that reduce funds available for beneficiaries.
13:42 The growing practical issue of US banks refusing accounts for trustees who don’t have US addresses. Start listening now for more.
16:17 Why hiring a US-based professional fiduciary might be the most cost-effective solution despite emotional preferences for family trustees.
18:49 How obtaining an ITIN (International Taxpayer ID Number) can delay distributions by months—another documentation hurdle for foreign beneficiaries.
22:09 Have you heard about the recent discovery regarding US citizens living abroad? Their US assets require a “transfer tax certificate” from the IRS, which can take 6-9 months to obtain, even when no tax is owed.
25:44 The workaround for transfer tax certificate delays: Opening a probate proceeding can facilitate quicker distributions.
Transcript:
Hello and welcome to Absolute Trust Talk. I’m Kirsten Howe, the managing attorney at Absolute Trust Counsel, and we’re glad that you’re here today to listen to this episode of my podcast. My guest today is Janet Brewer, from the Law Office of Janet L. Brewer, located in Los Altos. We had Janet on our last episode. Janet is a certified specialist in estate planning and probate, and a significant part of her practice involves international planning for clients facing various international issues. I wanted to have her on to discuss some of these topics. In our last episode, we focused on guardianship and the challenges that arise in international situations, so if you’re curious about guardianship, I encourage you to go back and listen to that. Today, however, we’re going to explore other aspects of international estate planning. Janet, let’s start out with you, and first of all, welcome back! I’m glad to have you here. Thank you.
Let’s discuss a common situation that I believe you encounter. I see it less frequently, but since you’re in Silicon Valley, your client base is somewhat different from mine in this aspect. However, you have many clients on visas who are working and earning good money, and that situation can offer a unique planning opportunity. Let’s just say.
Okay, well, as you mentioned, I’m in Los Altos, which is the heart of Silicon Valley. Many of my clients are here on visas. Some have green cards, but a significant number hold visas and possess stock options or RSUs. Therefore, my typical international estate planning client is not one that most people consider. It’s not necessarily that the estate tax, which currently affects individuals with estates over $13 million—almost $14 million—doesn’t impact them. However, for someone on a visa, the estate tax can apply with as little as $60,000. Fortunately, there are several ways to navigate around that, including items that aren’t counted when calculating that amount.
One thing they encounter, if the company is successful, is what happens with their stock if something occurs. This is an area where, again, international estate planning is a bit different for a U.S. citizen. The IRS states that anything you own, anywhere in the world, is subject to estate tax. In international estate planning, the rules change depending on whether you’re dead or alive, and also where the assets are located. For someone who has RSUs, once they exercise them, and, God forbid, they pass away, if they die owning shares of stock in the company, those assets are part of their estate for estate tax purposes. However, if they gift those same assets while they’re alive, they are not subject to gift tax.
This is a common situation I encounter. The children in the United States are suddenly worth a lot more than their parents, who live in another country and can afford to gift them. You know what we would consider a large sum. They can give them $500,000 or a million dollars’ worth of stock without worrying about estate taxes or gift taxes. So that’s something I guide people on when they want to take care of family members overseas while they’re primarily here on visas. There are some ways to do that if you’re a green card holder, but for the most part, a green card holder falls under most of the same rules as a U.S. citizen.
Your client is the person who is here on a visa working for a U.S. company issued RSUs, stock, or stock options, whatever it might be. It might make sense to gift that while they’re alive to their parents back in their country of origin for tax reasons.
Assuming that, you know, the issue all our clients face is ensuring there’s enough for themselves. Can I do that? Can I afford to do that? I’ve had several clients who are Silicon Valley success stories. They’ve gone from a couple of million dollars’ worth of stock to all of a sudden, it’s worth $10 million, then $40 million, and then $100 million. While it’s not frequent, it happens enough that if they can give that away without it being subject to tax, that’s something they want to do. They want to help mom buy a home or have a more comfortable retirement, and the dollar goes a lot further in other countries than it does here. So, what we might not consider enough to live on for the rest of our lives can make a massive difference in the lives of loved ones back in another country.
Can I ask you a question? You said that the example you gave is to let’s send $500,000 worth of stock back home, and you mentioned that there’s no estate tax or gift tax because the person doing the transfer is not a US person. They don’t have an agreement. They aren’t a citizen. And is there no limit at all? They could be sending $100 million worth of stock back home.
That is correct. This is, yeah, okay.
This person is not subject to U.S. gift and estate tax laws. Not exactly okay. This is where it gets tricky. They are subject to U.S. gift and estate tax laws; it’s just that the gift and estate tax rules are somewhat different. It has to be a person who is not a U.S. citizen. The legal term we use in the international field is “domiciliary.” You can be a U.S. resident for income tax purposes, but you are not necessarily a U.S. domiciliary for estate tax purposes. It’s just one of those little minor distinctions. Basically, if you remember back to law school, the good old International Shoe case, you can have many residences, but you can only have one home.
Got it, so a domicile is most easily translated to what you consider your home. One of the requirements for obtaining a visa in the United States is swearing that you will not make the United States your home. Since it’s not your home, there are some loopholes you can exploit to transfer wealth outside the country. However, there are different rules for U.S. stock or gift tax purposes. While it isn’t subject to gift tax, that same U.S. stock, if you die owning it, is subject to estate taxes. Okay.
Okay, so, yeah, we’re really kind of nerding out on that, but it’s an important point. There are a lot of planning opportunities that work around it.
You use the term “loophole,” and that’s probably how the general public sees it. However, we view it as a planning opportunity. There’s a disparity between what’s income taxable and what’s gift taxable. We should take advantage of it, right?
As we both know, the advantage isn’t as significant as it was several years ago when the estate tax rate was much higher.
However, from the perspective of someone here on a visa, they face a $60,000 exemption compared to this year’s exemption of $ 13,990,000 or $13,990,000 million. This could be a tremendous opportunity. The tax rate is high; if you’re a nondomiciliary with an estate worth a million dollars, you will owe $345,000 in estate or gift tax, which is 40% on everything above that.
A $5 million estate incurs $345,000 on the first million and then $400,000 on each additional million. That’s another four times four, which equals 1.6, so you have 1.6 plus 345, resulting in almost $2 million in estate tax on a $5 million estate. While many in this area don’t consider themselves millionaires with just $5 million, the truth is that they are, and you don’t want to see roughly 40% of that going to taxes simply because you haven’t planned well. Right?
That’s it, yeah. In a $5 million estate owned by a US citizen, it would not be taxed at all. Exactly, yeah, exactly, yeah. It’s a significant distinction. Janet, one of the things we must be mindful of when our clients have family members back home—and they might want to include them in their estate plan—is the issue of who should be the trustee of our clients’ trust. Would you like to discuss that a bit?
Yeah, I’d be happy to.
I get questions all the time. I have people come in regularly who say, “Well, I want my sister, who lives in [name the country], to be the trustee of my trust.” If that happens, I tell people there’s nothing wrong with it—it’s not illegal, immoral, or unethical—but it can be very costly. If you have a U.S. citizen or, in some cases, a green card holder who is considered a U.S. person, and they appoint a trustee who does not reside in the United States, you may encounter what the IRS refers to as the foreign trust rules.
And the foreign trust rules can end up costing, or potentially costing, the beneficiary significant money in taxes. Therefore, you need to be cautious when making that decision. Some of my clients say, “You know what, I don’t care. That’s still the best person to be in charge. That’s the person that I trust.” And again, it’s not illegal. There is a tax cost to be paid, but, you know, the government is more than happy to have you pay that tax bill. So if it’s acceptable to you, it’s certainly acceptable to them.
But there are actually some other practical problems that people are facing these days. Kristen, I’m not sure if you’ve come across this issue, but I find that US citizens living overseas are having a hard time opening or maintaining bank and brokerage accounts in the United States. What do you think? Are you experiencing that? I know I have encountered it, but that doesn’t surprise me; it’s interesting, yeah, yeah.
Okay, yeah, there’s so much concern about money laundering that the banks are reluctant to have any account holders who don’t live in the US, right? And that’s not due to any law or executive order or anything. It’s just a bank-by-bank policy. We don’t want to get caught in this, so we’re simply not going to take any of those kinds of accounts. Yeah, right, right.
I think I’m not 100% sure of this, but there are also reporting requirements that must be met if the town holder does not have a US address. I’ve been told, though I don’t know this for a fact, that banks and brokerage firms are becoming sophisticated enough that using a rented post office box with a screen address is no longer acceptable. They know where those places are located. If they see that your address is 123 Fourth Street, Apartment 22, they know it’s Box 22 at the local rent-a-post-office box store.
It’s becoming increasingly difficult to maintain these accounts. Just as a practical matter, if you have an overseas trustee, there are reporting requirements. The banks in other countries have obligations to report to the United States. I have some clients, and I’m not recommending this, but I see that some clients overseas are giving the account outright as a gift to the child’s guardian, trusting that the guardian will use the money for the children. This can be a very risky approach because certain countries enforce what are called forced heirship rules. If the guardian dies, they are required by their country’s laws to allocate a certain percentage of the estate to their spouse or children. Even if they’ve set up a will stating that all the money goes to my brother’s children, that won’t be enforced. That’s an interesting aspect.
Okay, avoiding a foreign trustee is often financially desirable. It might not work for the family because the people they trust are foreign. However, alternatively, we could always suggest hiring a US trustee and be done with it. Of course, that’s not someone you necessarily know or trust. But those are the benefits of having licensed professional fiduciaries available here. So that’s a consideration, I suppose, yeah.
I know you encounter this in your practice all the time. Many people prefer having family member trustees, but there are plenty of situations where it makes more sense to have either a corporate trustee or a private professional fiduciary. Frankly, this is one of those situations. It simplifies things, especially from a tax perspective. Additionally, many of my foreign clients don’t have $ 20, $ 30, $ 3040, or $50 million, so saving a few thousand dollars in taxes each year can significantly impact how much money is available to care for their children.
Right? So it’s definitely something to consider, and once again, the pluses and minuses are laid out on the table. The client makes the choice, yeah, exactly, exactly.
Okay. So there’s one more thing I want to discuss in this episode. It’s about a situation where someone in the US dies, and the beneficiary inheriting their money is in another country and is not a US citizen. Are there specific hurdles that this person will have to overcome, or will the trustee of that trust need to jump through certain hoops that we wouldn’t have to if our beneficiary were here in the US and a US citizen?
Yes, there are some significant issues. Again, I will return to the bank and brokerage firms. They will not release the money to someone until they receive a form from that person, which must include either what is known as a social security number or an international taxpayer ID number, an ITIN. This is important because, going back to the example of stocks or even money market accounts, the money from a money market account or stock is not disbursed on the day the person dies. Therefore, between the time of death and when the money can be accessed, it may have accrued interest or earned dividends, and with interest and dividends comes income tax.
The brokerage firm has a responsibility to ensure that income tax is paid to the U.S. Treasury. What they need to accomplish this is someone’s Social Security number so they can prepare a 1099 that associates the money sent with the recipient. Most people living outside the United States do not have Social Security numbers unless they worked here in the past or are U.S. citizens who have since moved overseas. Therefore, having a Social Security number is not a problem. However, if they do not have a Social Security number, they must obtain this item, which can take a couple of months to secure.
Once upon a time, you had to actually make an appointment with a U.S. consulate or a U.S. embassy in the country where you lived, and that consulate or embassy wasn’t necessarily close to your residence. I don’t know if this happened pre-COVID or post-COVID, but I’ve certainly heard more about it. Post-COVID, there are now agents. You can actually go on the IRS website, and there are people designated in different countries who have the authority to apply for an item on someone’s behalf. Okay, so it is, you know, but it’s still a couple of thousand dollars typically. The most that I know of is one firm that charges at least $5,000 to do this. Wow, quite frankly, the form isn’t that much more complicated than the W-9 form, but you can either use us or travel to the embassy and wait three months for an appointment. Do you want it next week, or do you want it next year, right? Yeah, you’re paying for the convenience. Yeah, that’s a legitimate business opportunity.
Yeah, if you don’t mind, I’m actually going to switch things up a bit to something I wasn’t aware of until recently. Let’s assume that you have a U.S. citizen living outside the United States who has assets in the U.S. Let’s discuss something that many people encounter. I’m currently dealing with a probate case where a woman who passed away had moved to England about 15 or 20 years ago. While she was in the U.S., she worked as a teacher and had a 403(b) retirement plan with several hundred thousand dollars in it. Her beneficiaries are U.S. citizens living in the United States. However, we’re having trouble getting the money out of the brokerage firm and transferring it into a rollover IRA. I didn’t realize that even in a non-taxable situation—her entire estate was probably worth less than $2 million, including all of her worldwide assets—she is now close to the $13 million threshold for a U.S. citizen. There’s an IRS requirement stating that when the decedent is a U.S. citizen who is not living in the United States, you must obtain what is called a transfer tax certificate from the IRS.It is a rather convoluted procedure. The first step is to obtain a death certificate issued by a US Embassy. There is a form called the report of a death of a US citizen living overseas that you need to acquire. Even though you are not subject to estate tax, you must compile the same information that you would for an estate tax return to the IRS to demonstrate that there’s no estate tax owed. The IRS requires a date of death balance sheet showing the assets and liabilities, and then you have to apply for the transfer tax certificate. There are a few other requirements as well that I can’t recall, but you will need to apply for this transfer tax certificate. The IRS website itself states, and this is pre-COVID, that it ordinarily takes six to nine months to provide the transfer tax certificates.
Oh, okay, so people living overseas who think that, “Oh, no problem, I’ve got assets in the United States,” have beneficiaries named, and frankly, even if they have a trustee on their trust, the banks and brokerage firms are not releasing the money at this point without the transfer tax certificate. Again, this is kind of a practice tip for you. There is a way around it. They will release it when there is an executor appointed.
Oh, so we’re going to discuss opening the probate. I mean, you and I all know what that entails. It will probably be a dry probate, right? But you can open a probate because then the IRS has someone located in the United States who is responsible for any unpaid taxes, right? So this is, you know, again, even when the beneficiaries are in the United States, it can pose a problem for someone who lives overseas. I only recently came across this situation, so okay.
Well, we all benefit from your hard-earned experience, which was interesting and fascinating. Thank you for that tip at the end. And Janet, I want to thank you again for this episode. In the previous episode, we learned a lot and covered a lot of material. I really appreciate you being here.
Thank you. It was a pleasure.
All right, and thank you all for watching, listening, thinking hard, and following along. We look forward to connecting with you next time.
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