Estate and Tax Planning
International families often require careful and comprehensive tax and estate planning.
What is the most tax-efficient way to hold assets such as brokerage accounts, businesses and real estate? What estate and inheritance taxes face the legatees of non-US citizens who have assets in the United States?
After analyzing your situation we recommend tailored solutions.
Below you will find replies to frequently asked questions:
My relative in Europe wants to give me a piece of real estate as a gift, while retaining the right to use it (life estate, usufruit, Nießbrauch). Is this a good idea?
Accepting real estate or other appreciating assets as a gift is generally not advisable for US taxpayers. While you will not have to pay any German capital gains taxes when selling the gifted real estate, you will still need to pay US capital gains taxes. The taxes are not based on the date the gift was received or the donor’s death. These taxes are based on the appreciation since the donor either purchased or inherited the property. If the donor acquired the property as a gift (as is common in Germany, with Nießbrauch), the appreciation is calculated by tracing back through the chain of gifts, considering the value increase since the property was originally purchased or inherited.
For US taxpayers, it’s typically better to wait until the donor’s death to receive title to the property. This way, any capital gains tax at the time of a future sale will only be based on the appreciation since the donor’s death, not on any increase in value that occurred before that.
I have real estate in Germany worth €2m. I am married and have three children. In my will I want to leave all my assets first to my spouse; upon my spouse’s death the assets will be left to our children. What are the disadvantages under German law?
Leaving everything to the surviving spouse will result in a loss of 3 x €400.000 German inheritance tax exemption, because the exemption amounts after the first-to-die spouse will be left unused. Moreover, the amount going from one spouse to the survivor spouse (that exceeds the exemption amount among spouses of €500.000) will be taxed twice, at the respective death of each spouse.
Therefore, it is advisable to leave a substantial amount to each child at the death of the first-to-die spouse.
My spouse and I have a joint financial account in the US. Who inherits the share of the person who dies first? Can we each dispose of our share, e.g. in a will or a beneficiary designation?
In the US, joint financial accounts (such as bank accounts and share deposits) between spouses are generally titled “right of survivorship”. This means that the surviving spouse automatically becomes the sole owner of the entire account. This rule comes into force regardless of how much each spouse has contributed to the assets.
Joint ownership cannot be changed by a testamentary disposition, as the joint title takes precedence. Spouses can therefore not dispose of these accounts by will.
However, it is possible to name beneficiaries and alternate beneficiaries who will automatically receive the account after the death of the surviving spouse outside the probate process. You can usually obtain the form for naming beneficiaries from your financial institution or financial advisor. Some institutions also allow you to name beneficiaries online.
You do not need a will to dispose of the brokerage account.
If your current brokerage account is titled in both of your names, then the account is most likely titled “jointly with right of survivorship.” This means that upon the death of one spouse, the other will automatically become the sole owner of the entire account.
In the United States, joint titling almost always goes hand-in-hand with the survivor becoming the sole owner of the entire account. This applies even if you have a UK will that stipulates something else. The joint title (ownership) takes precedence over a contradictory testamentary disposition.
Furthermore, you can designate transfer-on-death or payable-on-death beneficiaries who receive the stocks upon the death of the surviving spouse automatically outside of probate. You can either designate both of your children as 50% beneficiaries each, or you can designate one of them as 100% beneficiary and their children as substitute beneficiaries, in case the parent dies during your lifetime.
You will receive the form to name the beneficiaries from the custodian or your financial advisor. You may be able to designate the beneficiaries online when you log on to your brokerage account.