What is expatriate estate planning and who needs it?

Who is an expatriate for estate planning purposes?

For estate planning purposes, "expatriate" describes any US citizen or permanent resident who has a meaningful connection to another country through residency, property ownership, business interests, or family ties. Living in the United States full time does not change the analysis if the person holds assets abroad.

The population in Houston that typically benefits from expatriate estate planning includes US citizens who own real estate in Mexico or another country, permanent residents who maintain financial accounts or property in their home country, US citizens who have lived abroad and retained foreign assets, and dual citizens with family members who reside outside the United States.

What these situations share is that the estate plan must account for assets and obligations in more than one legal jurisdiction.

What does an expatriate estate plan include?

The US-law components of an expatriate estate plan are similar to those of a standard Texas plan, with additional provisions that address the cross-border dimension.

1. Will or revocable living trust for US assets. The core document directs what happens to US-sited assets. For families with foreign assets, the trust agreement should be drafted to address the US side clearly, without creating conflicts with any foreign succession documents that address the other side.
2. Durable financial power of attorney. An agent designated to manage US accounts and property during incapacity. Where foreign accounts are also held, a separate or supplemental document may be needed for the foreign institution, depending on the country.
3. Medical power of attorney and advance directive. Standard healthcare decision-making documents covering the US side. Countries vary significantly in whether they recognize foreign advance directives, so this document may need a country-specific counterpart.
4. Foreign reporting compliance. US citizens and permanent residents are taxed on worldwide income and must report foreign financial accounts and specified foreign assets annually. Identifying these obligations and confirming they are being met is part of the estate planning intake process.
5. Coordination with foreign legal counsel. For assets held outside the United States, the estate plan should be coordinated with an attorney licensed in the relevant foreign jurisdiction. The US attorney handles the US-law components; the foreign attorney handles the components governed by foreign law.

What US reporting obligations follow US citizens abroad?

US citizens and permanent residents are subject to US income tax on worldwide income, regardless of where they live or where the income is earned. This "citizenship-based taxation" is one of the defining features of the US tax system and has significant implications for expatriate planning.

Beyond income tax, US persons with foreign financial accounts above the applicable threshold must file the FBAR (FinCEN Form 114) annually. Those with specified foreign financial assets above a separate threshold must file Form 8938 with their federal return. Both requirements apply even to US residents who live in the United States but hold foreign accounts.

US persons who relinquish US citizenship or long-term permanent residency may be subject to exit tax under the expatriation rules. This is a separate and complex area that requires planning well in advance of any decision to relinquish status.

How does foreign property ownership affect a Texas estate plan?

Property located in a foreign country is generally governed by that country's law for succession purposes, regardless of what a Texas will or trust says about it. A Texas estate plan that does not account for foreign property may leave that property without a clear succession mechanism under the law that actually governs it.

The practical effect varies by country. Some countries recognize foreign wills or trusts under certain conditions. Others require local succession documents to transfer property located within their borders. The interaction between a US trust and a foreign asset structure, such as a Mexican fideicomiso, requires careful drafting to avoid conflicts.

Identifying every foreign asset and confirming how it is titled is the starting point for this analysis. How each asset should be addressed in the US plan, and whether it needs a parallel foreign document, depends on the specific asset type, the country, and the applicable local law.

When to speak with a Houston expatriate estate planning attorney

This article provides general information only and does not constitute legal advice. Expatriate estate planning involves US law, and the non-US-law questions require separately retained foreign legal counsel.

The estate planning attorneys at Edison Legal work with Houston-area US citizens and permanent residents on the US-law side of expatriate planning, including the identification of reporting obligations and coordination with foreign counsel. Request a planning consultation to discuss your international situation.