Estate Planning Considerations for US taxpayers

Estate planning is an important part of any financial plan, but when your assets are spread across multiple countries, it can be a little more complex.  Here is our guide to what to consider when preparing your estate plans as an expat.

#1 Consider concurrent wills to avoid misinterpretation

When it comes to the division of your assets held in more than one country, you typically have two options for your will.  You can choose to have an international will, made in line with a convention to which Australia is a signatory, or concurrent wills – separate wills for different jurisdictions in which your assets are held.  In many cases, having separate wills is the best solution. While an international will should be recognised in both the US and Australia, they are open to different legal interpretation in both jurisdictions and can take significantly longer to execute.

When making concurrent wills, it’s critical to let your legal and financial professionals know, so that they can ensure alignment across the documents, and that, ultimately, your estate plans will be executed according to your wishes.

#2 Understand US estate tax exemptions

Currently, the US applies a lifetime estate and gift tax to citizens and Green Card holders, which can tax worldwide assets at up to 40%.

As it stands, there is an exemption of up to USD $11.7 million per individual, so this is not a concern for most people.  However, there has long been speculation that this threshold will be significantly reduced at some point in the future. President Biden has previously proposed restoring the exemption limit to USD $3.5 million, meaning many more estates could be taxed.

Gifts you give during your lifetime can reduce this exemption. Each year US citizens or Green Card holders can give the following gifts without impacting the threshold:

• Up to USD $15,000 to any individual they like
• Unlimited amounts to a spouse who is a US citizen
• Up to USD $159,000 to a spouse who is not a US citizen

While estates that pass to a US citizen spouse are exempt from US estate taxes, this is not the case if the beneficiary is a non-US citizen spouse.

#3 Understand the Australian tax landscape

Although Australia has not had an official estate tax for many years, one area of your estate that may be taxed is your superannuation. When your superannuation is passed to a spouse, child/ren under 18, or a financial dependent, it is tax free. However, if it goes to someone else (including adult children), the portion of your superannuation benefits that were received through employer contributions and salary sacrifice (and any associated earnings) may be taxed at 17%.

When an Australian resident inherits an asset for example, property or shares, they will not pay Australian tax on this inheritance, however, taxes will be applicable on eventual sale. If the asset was originally purchased after 20 September 1985, then the capital gains tax on eventual sale will be calculated using original purchase value.  Typically, your family home is exempt from Australian taxes if sold within two years of your passing.

If you are an Australian resident, there may be capital gains taxes applicable to your estate should certain assets (excluding Australian property) pass to a beneficiary living outside Australia.  You can manage this by carefully planning which of your assets should go to foreign beneficiaries.

#4 Get expert advice from professionals who understand both jurisdictions

From your lawyer to your accountant and financial planner, it’s important to have an expert team in your corner who understand both jurisdictions.  This will ensure that you have the right estate plan in place, so you can leave the legacy you want.

If you’d like to find out more about how expert financial advice can help you reach your goals and plan for effective wealth transfer as an expat, get in touch with Apt Wealth Partners.

General Advice warning

The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.