Issues with Foreign Beneficiaries and U.S. Estate Plans

Recently, we served as a legal advisor to a woman, let's call her Carmen for ease of reference, who lives in Israel but has property and family in Florida and Israel. She is a U.S. citizen, and after spending a few decades living in Florida, she has decided to move back to Israel to live out the rest of her "youth."

Carmen has two daughters, who interestingly enough, each married brothers from another family. One of Carmen's daughter's, Taylor, lives in Israel, while the other daughter, Diane, lives in Tampa, Florida.

After explaining the difference between creating a Last Will and Testament versus creating a Living Trust, Carmen decided to create a Trust for her daughters, Diane and Taylor. I quickly pointed out the need to work with an Israeli estate planning attorney because giving assets to heirs who do not live in the U.S. may raise complex tax and legal issues in Israel. Cross-border gifts are tricky because it not only touches U.S. law, but the law of the country where the person receiving the gift lives.

Cross-border transactions trigger taxes, both domestically and internationally, treaties, and foreign laws. Foreign gifts may be provided but special considerations must be made to ensure the beneficiary does not lose a significant portion of their inheritance through double and sometimes triple taxation.

In the present case, the gift by Carmen to Taylor will be governed by U.S. laws and Israeli laws. Consideration of the laws of Israel must be made to determine the proper structure and most tax advantageous way to transfer the legacy gift.

In sum, special considerations need to be taken when a U.S. citizen is married to a non-citizen, a U.S. citizen resides outside of the U.S. (an expat), a cross-border gift is made triggering a slew of tax regulations and international treaties.