Foreign inheritance questions if anyone here knows

[Alan]

I’ve wondered what the situation is for an expat living in Europe and inheriting US assets. But I don’t know where to look.

There will almost certainly be a double taxation agreement between that country and the USA

https://www.gov.uk/guidance/inheritance-tax-double-taxation-relief

If both the UK and another country charge Inheritance Tax, you could avoid or reclaim the tax through a double taxation convention.

As to the op’s question on gifting, the giftee will need to know the rules in the country he lives in. In the UK you can gift as much as you want in any given year with no tax consequence. However a 7 year clock starts ticking and if you die within 3 years and your Estate is above the limit then a tax of 40% is imposed on that gift. In years 4 through 6 the tax rate declines so that no tax is ever due on any size gift if the giftee is still alive after 7 years.

 

[audreyh1]

There will almost certainly be a double taxation agreement between that country and the USA

https://www.gov.uk/guidance/inheritance-tax-double-taxation-relief

My question is whether assets inherited in the US would be taxed in Europe. There is no inheritance tax in the US in the sense that heirs don’t pay any tax in the US when they receive their inheritance. Instead we have an estate tax with a very high exemption.

So if an expat living in Europe (Netherlands) receives an inheritance in the US clear of taxes (any would have already been paid by the estate), how is that inherited money treated by the country of residence?

 

[Alan]

My question is whether assets inherited in the US would be taxed in Europe. There is no inheritance tax in the US. Instead we have an estate tax with a very high exemption.

It's the same answer - it depends on the country and the double taxation agreement between the 2 countries.

As far as the UK is concerned there is no tax if one inherits cash or assets from someone in the USA. e.g. If our daughter in California should die her estate would be subject to US estate taxes and then any inheritance money we would receive from the estate would be tax free in the UK.

 

[USGrant1962]

My question is whether assets inherited in the US would be taxed in Europe. There is no inheritance tax in the US in the sense that heirs don’t pay any tax in the US when they receive their inheritance. Instead we have an estate tax with a very high exemption.

Just for completeness, some states have inheritance taxes. This article is a little old now but provides a nice map https://taxfoundation.org/does-your-state-have-estate-or-inheritance-tax/

 

[audreyh1]

Just for completeness, some states have inheritance taxes. This article is a little old now but provides a nice map https://taxfoundation.org/does-your-state-have-estate-or-inheritance-tax/

Six states - thanks.

But these apply to estates of deceased residents of those states.

Apparently the name inheritance tax means the tax rate applied is determined by the relationship between each heir and the deceased. Not that the heirs pay tax . The estate still files and pays the taxes.

 

[dvalley]

what if you receive $50k in 2018 and $60k in 2019 and perhaps another $30k in 2020 do you have to file 3520 for 2019 and 2020 because by then you received more than the $100k (threshold for reporting on 3520)? Or does the $100k threshold apply per year?

Any thoughts on my last question?

 

[Alan]

Any thoughts on my last question?

Looking at the instructions on completing form 3250 it is year by year and not cumulative. In any given year you must add up all the foreign gifts and if greater than $100k file the form.

https://www.irs.gov/businesses/gifts-from-foreign-person


“Reporting Requirements
You must file Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, if, during the current tax year, you treat the receipt of money or other property above certain amounts as a foreign gift or bequest. Include on Form 3520:

Gifts or bequests valued at more than $100,000 from a nonresident alien individual or foreign estate (including foreign persons related to that nonresident alien individual or foreign estate);”

 

[Sunset]

Very helpful discussion, thanks for all the info folks! One other minor question that popped in my head...what if you receive $50k in 2018 and $60k in 2019 and perhaps another $30k in 2020 do you have to file 3520 for 2019 and 2020 because by then you received more than the $100k (threshold for reporting on 3520)? Or does the $100k threshold apply per year?

When you first read the document you would think you could be exempt. However you could very quickly come to the attention of some authorities, as a perceived structuring of money movement is exactly what illegal activities need to do.

To avoid this, if I was getting the money in blocks all less than the required amount, I'd report it each time so you can claim you reported it all,

https://en.wikipedia.org/wiki/Structuring

 

[fosterscik]

When you first read the document you would think you could be exempt. However you could very quickly come to the attention of some authorities, as a perceived structuring of money movement is exactly what illegal activities need to do.

To avoid this, if I was getting the money in blocks all less than the required amount, I'd report it each time so you can claim you reported it all,

https://en.wikipedia.org/wiki/Structuring

I agree. There are NO taxes due or other consequences if you file the form. The penalties for not reporting funds on form 3520 are severe. So why even contemplate splitting funds to avoid filing?

I mentioned up-thread that I've filed form 3520 twice. It took me a few minutes (literally) to fill out the form. That and a 1st-class stamp avoids all problems/penalties.

 

[dvalley]

That makes sense but as Alan pointed out looks like it is a year by year requirement. As for structured payments, well, same issue no? i.e. do I need to tally up all the payments and report those cumulatively each year or just for that year. So let's say I get $60k in 2017 and I report it. Then I get $50k in 2018, do I report $50k in 2018 or $110k in 2018?

 

[DrRoy]

For any assets that you would receive which are currently in another country, I highly recommend contacting a lawyer in that country. My (US) parents owned some property in Canada that was left to DS and I. Canada did not accept or even consider their US will and the whole thing went through Canadian probate. A Canadian will would have helped a lot. We also had to file a Canadian tax return.

 

[Alan]

That makes sense but as Alan pointed out looks like it is a year by year requirement. As for structured payments, well, same issue no? i.e. do I need to tally up all the payments and report those cumulatively each year or just for that year. So let's say I get $60k in 2017 and I report it. Then I get $50k in 2018, do I report $50k in 2018 or $110k in 2018?

In 2018 you just report $50k.

 

[audreyh1]

It's the same answer - it depends on the country and the double taxation agreement between the 2 countries.

As far as the UK is concerned there is no tax if one inherits cash or assets from someone in the USA. e.g. If our daughter in California should die her estate would be subject to US estate taxes and then any inheritance money we would receive from the estate would be tax free in the UK.

It looks like many countries only consider the residency of the donor when determining estate or inheritance taxes, and only get involved if the donor/deceased is a resident of the country at the time of the gift/death.

 

[Sunset]

OP - if it was me. Like I said I'd report what I got each year, every year I got something.

Especially since you bring it up, somehow you must be thinking this is going to happen this way, that you will get over $100,000 spread out to hide it from the gov't. Right there it is starting to look very structured to attempt to avoid reporting it. Which is difficult as they will know from bank records the money was sent to you.

Understand if you do structure it and skip the reporting, you run the risk of it being seized. Then you can hire a lawyer and fight to try to claim it back, and if you are successful claiming it back, you will still be liable for fines for not reporting it.

 

[Alan]

OP - if it was me. Like I said I'd report what I got each year, every year I got something.

Especially since you bring it up, somehow you must be thinking this is going to happen this way, that you will get over $100,000 spread out to hide it from the gov't. Right there it is starting to look very structured to attempt to avoid reporting it. Which is difficult as they will know from bank records the money was sent to you.

Understand if you do structure it and skip the reporting, you run the risk of it being seized. Then you can hire a lawyer and fight to try to claim it back, and if you are successful claiming it back, you will still be liable for fines for not reporting it.

Providing the OP and his parent keep good records there is no reason to not transfer the funds over a number of years.

However, it is only a reporting form that needs to be completed if the gift is made in a single year so there is no advantage tax wise in spreading it out over a number of years.

Last year we made a large gift to our son to buy a house in England. The bank in England asked for evidence of where the money had come from and so did his solicitor, including evidence of where we had got the money. I produced a copy of my Vanguard brokerage statement plus our US bank statement for the month showing the transaction in from Vanguard and then out to our son’s UK bank.

 

[bmcgonig]

You may have to pay inheritance taxes in the country in which your relative lives. E.g., if your relative lives in Ireland you would have to pay taxes if the amount exceeds the following:

1) €310,000 (since Budget 2017 to date) where the recipient is a child, or minor grandchild of the benefactor, if the parent is dead. In some cases this threshold can also apply to a parent, niece or nephew who have worked in the family business for a period of time.

2) €32,500 where the recipient is a parent, brother, sister niece, nephew or linear ancestor/descendant of the benefactor.

3) €16,250 in all other cases

 

[cyber888]

Anything above $100,000, you report to the IRS. There are no taxes as a receiver of gifts

 

[Meadbh]

You may have to pay inheritance taxes in the country in which your relative lives. E.g., if your relative lives in Ireland you would have to pay taxes if the amount exceeds the following:

1) €310,000 (since Budget 2017 to date) where the recipient is a child, or minor grandchild of the benefactor, if the parent is dead. In some cases this threshold can also apply to a parent, niece or nephew who have worked in the family business for a period of time.

2) €32,500 where the recipient is a parent, brother, sister niece, nephew or linear ancestor/descendant of the benefactor.

3) €16,250 in all other cases

Also, tax rules change from time to time, so make sure you have current information. In 2005 I had an inheritance from my Irish mother. It was larger than the amount in 1), but as the limits were higher then, I did not have to pay any tax on it.