Tips for estate planning and tax law compliance in a global economy

Do you own a vacation home in Mexico? Have a bank account in Hong Kong? Has your spouse retained Canadian citizenship? Are you a long-term U.S. resident who was born in the U.K.? Is your brother-in-law, who is a citizen and resident of Ireland, the successor trustee of your revocable trust?

Each of these scenarios raises complex tax issues that, without proper planning, could easily have disastrous and costly consequences.


The fact is that we live in a globalized world: technology and commerce allow us to move about as we please, even across several continents. But remember that technology and commerce do not eliminate the legal borders of nations. Even if your life transcends those borders, your legal status, your tax obligations, and your estate do not. Settling estates, trusts, and the other related taxes can become an expensive headache if you and your family are stretched across the globe.

Last week, SmartBusiness issued a short list of common problems “global citizens” may encounter. For example, it has become increasingly common for a U.S. citizen to own a house in Mexico, but to do so may have involved a “fideicomiso”, which the IRS considers a trust subject to all foreign trust reporting requirements. So, if you purchased a condo in Cancun, you must file both IRS Forms 3520 and 3520-A annually or be subject to significant civil penalties. To make matters worse, after March 18, 2010, if you actually use the condo or let a relative use the condo, the fair rental value for the period of use is subject to U.S. income tax.

What if your spouse is not a U.S. citizen? Spouses are generally able to transfer assets to each other, both during lifetime and at death, without tax consequences. But if our spouse is not a U.S. citizen, things get a little more complicated. You may want to consult a qualified estate planning attorney to avoid unexpected (and unnecessary) gift and estate taxes.

If your estate and your life are spread across the globe then you need to account for some complex issues in your tax and estate planning. For more tips about how to stay out of the IRS’s crosshairs, read the entire article on SmartBusiness.



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