Careful planning addresses two major points: what happens to your money while you’re alive, and what happens to your money after you pass away.
In my work as a financial advisor helping Americans who live in Israel with their U.S. investments, I see many who neglect the second aspect, estate planning.
A well-planned estate is particularly important for dual citizens who need to make sure their final wishes meet legal requirements in various countries and are tax-efficient for both the estate and benefactors in different tax jurisdictions.
Insufficient planning may leave the taxman as the main beneficiary of your estate. If you are a U.S. citizen living in Israel and die without a will, regulations surrounding taxes and the transfer of assets between countries can make receiving an inheritance complicated.
When should you create an estate plan?
Many people think that estate planning is only for senior citizens or those facing a health crisis. However, even if you are young and healthy you need an estate plan, since you never know what life can bring.
What do you need to think about?
Estate planning is broader than simply making a will directing what to do with your assets. It covers issues such power of attorney, medical directives, health care proxy, and who will care for any dependents.
There are many tax implications surrounding inheritances, both for the estate and inheritor. The American federal estate tax exemption is now over $11 million per person (as of 2018) and the top federal estate tax rate is 40% [as of 2018]. While Israel doesn’t have a direct inheritance tax, Israelis living abroad may be subject to the tax rules where they reside, and there other taxes that arise when an Israeli dies and passes investments on to his heirs. Additionally, a foreign trust with Israeli beneficiaries carries tax implications. Consider gifting to your heirs during your lifetime, in the most tax-efficient manner possible.
Estate planning is more complicated than saying, “I leave you my assets.” Proper preparation should be made in consultation with a financial planner, tax advisor, and lawyer.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published November 16, 2015.