Receiving an Inheritance While Living Abroad

Americans abroad should review the inheritance before transferring, investing, selling or spending the assets.

A review should usually consider:

• who the inheritance came from
• whether the deceased was a US person or non-US person
• whether the estate is in the US or overseas
• whether the inheritance came through a trust
• whether Form 3520 reporting may apply
• whether foreign trust reporting may apply
• whether the inherited asset is cash, property, investments or a retirement account
• whether FBAR or FATCA reporting may apply
• whether local inheritance tax or estate tax applies
• whether US estate tax issues exist
• whether foreign tax has already been paid
• whether currency conversion is needed
• whether inherited investments are suitable
• whether inherited retirement accounts have withdrawal rules
• whether the inheritance changes retirement planning
• whether wills, trusts and beneficiary forms should be updated

IRS guidance says Form 3520 is used to report certain transactions with foreign trusts and receipt of certain large foreign gifts or bequests.

The Form 3520 instructions state that a US person who receives more than $100,000 in gifts or bequests from a nonresident alien individual or foreign estate must report the amount.

That does not mean every inheritance is taxed in the same way.

But it does mean reporting, source of funds, documentation and tax advice matter.

After receiving an inheritance, many people feel pressure to act quickly.

That is understandable.

But cross-border inheritances often need a short pause before major decisions are made.

Before transferring, converting or investing the inheritance, consider:

• whether the inheritance has been properly documented
• whether tax has already been paid by the estate
• whether any US reporting is needed
• whether foreign reporting is needed
• whether the money has passed through a trust
• whether any foreign estate or inheritance tax applies
• whether the receiving bank will need source-of-funds evidence
• whether assets should be sold or retained
• whether currency conversion should be staged
• whether debts should be repaid
• whether emergency cash should be increased
• whether retirement plans have changed
• whether family protection needs have changed
• whether your own estate plan should now be updated

An inheritance can be emotionally significant.

It can also be financially significant.

The best decision is rarely to invest everything immediately without understanding the tax, reporting, currency and personal planning position first.

This page is for general information only and does not constitute personalised financial, tax, legal, investment, pension transfer, retirement, estate planning, probate, trust, inheritance, immigration or currency advice.

Inheritance planning, foreign gifts, bequests, Form 3520, foreign trusts, inherited accounts, inherited property, FBAR, FATCA, US estate tax, foreign inheritance tax, local tax, tax basis, currency conversion, reinvestment and estate planning depend on personal circumstances and may change.

US tax advice should be taken from a suitably qualified US tax adviser or CPA. Local tax and legal advice should also be taken in the country where you live and where the estate is administered.

Financial planning should be coordinated with legal, tax, pension and estate planning advice where appropriate.

Investing involves risk. Pension, retirement account and investment values can fall as well as rise, and you may get back less than you invest.

Currency movements can affect the value of inheritances, investments, transfers and income.