Welcome to “Lost in Translation: Blunders in International Estate Planning.” This blog series explores the rarified world of international estate planning, uncovering potential pitfalls and providing insights to navigate the complexities.

Blunder No. 2: Overlooking the Role of Cash as King

There are numerous proverbs and sayings regarding money:

You can’t take it with you.

Money makes the world go round.

Throwing good money after bad.

Money talks.

Time is money.

A penny for your thoughts.

A fool and his money are soon parted.

Money does not grow on trees.

In the realm of international estate planning, one adage takes precedence: “Cash is King.”

Understanding the U.S. Federal Estate Tax:

The United States has a federal estate tax that is imposed on death. The top rate of estate tax is 40%. Fortunately for United States citizens and noncitizens who are domiciled in the U.S., there is a generous exclusion from the estate tax. For 2024, they have a $13.61 million exclusion for an individual and a $27.22 million exclusion for a married couple. By contrast, for a nonresident noncitizen of the U.S. who owns property in the U.S., the estate tax exclusion is only $60,000 and $120,000 for a married couple. An estate tax treaty between the United States and a client’s home country may occasionally expand that $60,000 exclusion.

Additional Estate Tax Exclusions for Nonresident Noncitizens of the United States:  

A few additional exclusions exist from the Federal estate tax for nonresident noncitizens of the U.S. For example, the death benefit from a life insurance policy that insures the life of a nonresident noncitizen is not subject to the Federal estate tax.

However, the most commonly used exclusion for nonresident noncitizens of the U.S. is cash on deposit with a United States bank. The cash that a nonresident noncitizen of the U.S. leaves in a checking account, savings account, or certificate of deposit with a United States bank is exempt from the Federal estate tax.

So, what is the blunder?: 

Cash that a noncitizen nonresident of the U.S. leaves in a mutual fund, money market fund, or brokerage account is Not Exempt from the Federal estate tax. Any sum of cash in a mutual fund, money market fund, or brokerage account over the $60,000 exclusion will be subject to Federal estate tax.

Conclusion: Protecting Assets Through Strategic Deposits:

If you or one of your clients is a nonresident noncitizen of the United States, and either of you want to maintain a U.S. cash account, please consider depositing the cash in a checking account, savings account, or certificate of deposit with a United States bank to avoid the Federal estate tax. Cash held in a mutual fund, money market account, or brokerage account will be subject to the Federal estate tax.

Knowledge is power, especially when it comes to preserving your wealth across borders. If you have any questions regarding international estate planning, please do not hesitate to reach out.