Receiving an inheritance can be a significant and emotional event. Managing inherited assets, such as trusts, is often complex, particularly when they span international borders. Trust beneficiaries often need guidance in navigating their windfall.
Recently, a client shared her gratitude about inheriting from her uncle’s trust, only to find herself entangled in unexpected legal and tax issues because she lives outside America. Her case is not unique. Many olim face similar challenges, revealing a crucial gap in understanding the implications of cross-border inheritances.
The Reality of Inherited Trusts
While trusts are frequently designed to control how assets are distributed after one’s death, they are often not straightforward. In the U.S., trusts can operate seamlessly; but when beneficiaries are abroad, such as in Israel, complexities arise.
For example, my client, residing in Israel, found that her inheritance brought unexpected tax responsibilities. The trust, drawn into the Israeli tax net because it named an Israeli beneficiary, required navigating both countries’ legal landscapes—a truly daunting task.
Essential Steps for Managing Inherited Trusts
To manage these challenges effectively, beneficiaries of non-Israeli trusts should consider several key actions:
- Seek Professional Advice: Early consultation with financial and legal experts familiar with cross-border issues is crucial. Strategic planning may minimize potential legal hurdles and tax liabilities.
- Understand the Trust’s Terms: The distribution schedule of a trust can impact your own financial planning. Your existing investment goals may need to be refined in response to an influx of cash.
- Plan for Tax Obligations: Depending on the trust structure and your residence, there may be significant tax implications. Planning with a tax advisor who understands international tax laws is vital.
If you find yourself as the beneficiary of a trust, or if you are setting up a trust with potential international beneficiaries, always ensure that your estate plans consider the beneficiaries’ citizenships and legal/tax implications. I frequently see inheritors who ask, “Why didn’t the trust writers seek professional advice to fully understand the implications of their plan?”
Get a free copy of “Essential Questions to Ask Your Cross-Border Professionals” by clicking here: Essential
Douglas Goldstein, CFP® is the director of Profile Investment Services, Ltd. (www.Profile-Financial.com). He is a licensed financial professional in the U.S. and Israel. Call (02) 624-2788 for a consultation on how to set up your American assets to meet your financial goals. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.
Published July 31, 2024.