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Estate tax planning: What happens to inheritances from overseas?

The world is getting smaller, and the borders between countries are becoming more porous than ever. Many Tennessee residents have close family and friends living overseas, and what does that mean for estate planning? It means that you could potentially receive an inheritance from someone abroad, and that means that special taxes will apply.

Many people who are going to receive an inheritance -- or have received an inheritance -- from another country want to know what kind of taxes they'll be subjected to if they bring their inheritance back to the United States. Generally speaking, inheritances of property from foreign sources will not be subjected to an inheritance or gift tax. However, other kinds of taxes could apply.

Bequests such as these might be subjected estate and gift taxes if they are sourced from a foreign national who is "domiciled" or living in the United States. Even if the foreign national does not have a green card, when he or she is classified as "domiciled" in the United States, taxes on transfers from the person will take effect, but they will be handled by a different kind of estate tax structure that governs transfers from foreign lands. This estate tax structure could change if the United States has a gift tax treaty with the country where the funds are sourced.

As you might imagine, taxes that apply to foreign-sourced inheritances and gifts are complicated and may not be entirely straightforward. As such, anyone who receives a foreign inheritance should carefully and diligently investigate how taxes will apply to their inheritance.

Source: FindLaw, "How U.S. Tax Rules Apply to Inheritances and Gifts from Abroad," accessed Dec. 01, 2017

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