A number of questions are immediately raised when a US citizen receives inheritance money from an overseas friend or relative, who isn’t a US citizen. Is this money taxable? Is there logistics involved in transferring the money? What is the ownership of the assets across international boundaries?
In the US, if you are designated as the executor of someone’s last will and testament, you are responsible for handling the person’s taxes. Handling estate (the tax on transferring money from the deceased to another party) tax can be a complicated matter that requires an attorney or accountant. An extra layer of difficulty is added if the money comes from a foreign country.
A very short answer to this line of questioning is that the US generally does not impose taxes on inheritances or gifts from abroad. But this isn’t always true, and many IRS rules can apply.
Some of the information you’ll need can be found on the Internal Revenue Service’s (IRS) website. You can call them if you have questions and if you get stuck, consult an accountant. Another good resource can be found here.
After someone dies they can continue receiving income from a variety of sources such as properties, dividends, interest or unpaid wages. Until the estate has been fully resolved, a trust tax return is generally owed. This must be handled by the executor of the estate or an attorney designated to do so.
Capital gains tax
Even if a person is deceased, it does not mean that capital gains tax (CGT) is avoided when transferring assets. CGT can be quite substantial ranging from 10% to 39% (as of 2013) depending on a variety of factors.
The date the transfer occurs is usually the date someone died.
The most common assets inherited from someone’s estate are real estate, stocks and bonds.
Exemptions from the CGT do exist, though – as long as they are related to the transfer of assets that are passed to either a beneficiary or a personal legal representative. Keep in mind that GPT will apply if an asset is transferred after death:
- To a foreign resident
- An organization exempt from tax, such as a nonprofit or a church
There are many creative ways people try to avoid a capital gains when they inherit money or any other circumstance. Forbes has written extensively on it here. The IRS capital gains site can be found here.
Inheritance law governs the rights of a person’s survivors to inherit property or assets from them. This type of law varies state to state. Whether a state follows community property law or common law makes a huge difference in how an inheritance is handled. If you’re researching the topic, figuring out which your state is is step one.
Typically, the executor of an estate will be the one who makes sure that these laws are followed. For some good information regarding inheritance laws click here. If you need assistance contact an attorney or accountant.
If you’ve been named as the executor of a will, you’ll likely be responsible for some or all of the following steps:
- Making sure all beneficiaries of the will are notified.
- Valuing and managing the estate.
- Obtaining the authority to administer the estate.
- Ensuring that all tax obligations are properly addressed.
- Resolving any outstanding debts.
- Overseeing the division of the estate.
Sending Money back to the United States
When you want to bring money back home to the US, you have a couple of choices.
- You can get a check issued in the currency of the country where the deceased person lived and then deposit and convert it to USD.
- You can get your inheritance money sent to your bank as an international transfer.
- You can get the inheritance money sent to a money transfer provider who will convert the cash into dollars and credit your USD account.
So, what’s the best option?
- What is best for one person won’t be for another. So ultimately it’s up to you to decide what’s best for you. That said, we don’t generally recommend the check option. It can take a long time and cost a lot
- Sending the inheritance money directly to your bank is quicker but it can be just as expensive.
- Dedicated currency providers will usually get you the best exchange rate. If you already have an account open with them this is a great option.