National Retirement Planning Experts

National Coverage
Local Professionals

Estate Planning Tips for Mixed Nationality Families

With the world becoming a global village, international borders have been merely limited to textbooks. Today, America is accepting diversity and letting go of social taboos, giving a steady rise to mixed nationality families in the country. As per a study conducted in 2019, merely 35% of the families in America are the typical heterosexual couples with kids. And even that figure is increasingly shrinking, leaving no doubt that diversity and complexity in the country’s family picture are strongly growing. While the ratio of mixed nationality families increasing in the country is a proud fact, it is also progressively more challenging when it comes to tax and estate planning matters.

In earlier times, decision making and much of estate planning was simple and also patriarchal. However, times have taken interesting turns. People are now subduing geographical limits. This brings a need for revision in the decision making and financial planning process. Modern times call for modern strategies. Here are some estate planning tips for families with mixed nationalities.

  1. Keep all documents updated
  2. The most important thing for a mixed nationality family to do before beginning the estate planning process is to ensure that all documents including tax-filing status, residential papers, property claims, bank accounts, loans, asset-ownerships, etc., are updated and correct. The name, address, nationality, age, and other personal details of all family members should be accurate, and all documents must be valid and up to date. This helps prevent any legal issues once the estate is due to the nominee. This step is critical in passing ownership and inheritance without legal delays or infighting.

  3. Choose to file jointly
  4. The primary concern for a mixed nationality family in estate planning is to decide their tax-filing status. While it is an individual’s choice to file separately or jointly, the tax repercussions of each aspect must be understood beforehand. When filing separately, the mixed nationality couple (assuming one is a U.S. citizen and the spouse is a non-U.S. citizen) filing individually is bound to attract high tax-rates, unlike a mixed-nationality couple filing taxes jointly. Separate filing of taxes by the couple will imply high marginal income tax brackets for both individually, as well as, result in forfeiting of all possible tax credits and exemptions, such as Roth contributions. Hence, it is advisable for mixed nationality families to file for taxes jointly by declaring their non-U.S. spouse as a non-resident who is choosing to become a ‘resident alien’ as per the Internal Revenue Code (IRC). However, it is essential to note that the declaration can only be made once and cannot be amended irrespective of the marital status of the couple. Thus, the decision must be made with utmost caution.

  5. Keep ownership of foreign assets separate
  6. To ensure hassle-free estate planning, it is important for mixed-nationality families to have separate ownership of assets. While joint ownership may seem like a short-term solution, it can have multiple long-term financial impacts. For instance, in the case of a couple where one person, a U.S. citizen owns joint assets with a non-resident U.S. spouse, high tax filing can get very complicated. The distribution and taxation on capital gains, interest, dividends, etc. become a matter of concern for such couples. In the joint ownership scenario, the mixed nationality couple will have to disclose all income in the U.S. while also comply with all tax obligations of the country of tax residence. Moreover, if the assets owned are foreign exchange-traded funds (ETFs), foreign mutual funds, etc., the couple will also face increasing tax reporting and tax compliance problems. This will levy substantial reporting obligations on the U.S. resident spouse in terms of disclosing all foreign financial accounts.

  7. Maintain separate bank and asset accounts
  8. Not only foreign assets, but even domestic assets owned by a mixed nationality couple should be separate and individually named. For all cases where the U.S resident owns joint domestic assets with the non-U.S. spouse, the filing will be made under the U.S. resident’s name. The U.S. domicile spouse will provide a Social Security number, and the 1099 bank or brokerage will be issued on the particular spouse’s name. This will imply that the legal and beneficial owner of the asset, from the Internal Revenue Services’ (IRS) perspective, is the U.S. spouse reporting the complete income from his/her account on the 1040 form.

    Even if the couple decides to shift the tax burden on the non-U.S. spouse, the tax bracket for each will differ vastly. In many cases, such as that of dividends and interest, taxes for non-U.S. residents are a massive 30%. In addition to the burdening tax implications, joint ownership of accounts and assets will also make cross-border estate planning very complicated. While some may argue that joint ownership makes transfer and access of the assets easy, when weighed with its complex legal proceedings and substantial administrative requirements, this advantage seems faded.

  9. Do not gift or shift the tax burden on non-resident members
  10. While there are attractive aspects about shifting the tax burden on the non-resident members, especially a spouse, it is still not a wise move to make. Gifting or shifting burden on the non-resident spouse allows for several tax advantages, especially if the spouse’s residing country is a low-tax zone. However, there are transfer tax treaties which create significant complications too. Couples where both members are U.S. domiciliary, have to pay lower gift, estate, and GST taxes. This is because each spouse has a lifetime exemption limit on $11.4 million (as of 2019) of their whole wealth (including foreign assets). But in the case of a mixed nationality couple, the U.S resident will only have a lifetime exemption limit of $60,000, which is inclusive of all wealth. Hence, a mixed nationality family must not shift any tax-burden or gifts to its non-resident members.

  11. Have individual estate ownership
  12. For mixed nationality families, where one of the spouses is a non-U.S. resident, and the other is a U.S. citizen, there may be several issues if the estate is jointly owned. Generally, in cases where the couple is a U.S. citizen and owns a house or a property jointly, the ownership and access are transferred to the living spouse after the death of one person. However, in case of mixed nationality, if the surviving spouse is not a U.S. resident, the ownership and access of the property or house will be included in the deceased spouse’s estate. However, to claim benefits, the surviving non-U.S. spouse will need to prove his/her contribution in acquiring the property. Hence, to keep the process simple and ensure equal and fair distribution of the estate, a mixed nationality family must have individual ownerships.

    To sum it up

    The daunting task of estate planning can be made easy by following these easy tricks. However, these are not exhaustive tips, and there are multiple more aspects which can be considered to ensure a smooth estate planning process for families that have mixed nationalities. In cases where a mixed nationality family has an existing complicated plan or no estate plan at all, professional help from Financial Advisor can be taken to crack loopholes and make a definitive and advantageous estate arrangement. These advisors can help optimize tax minimization strategies for mixed nationality families.

Search for articles

Find a
Planner
It's Fast, Free & Easy

  Your Information is Safe and Secure

article