Legal Translation Services and the Estate Tax for US Citizens Living Abroad

Financial Translation Services for U.S. Citizens Living Abroad

We’ve blogged about multilingual legal translation services in the context of the international and US taxes for expats. On December 17, 2010 President Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (TRA 2010) into law. The Economic Growth and Tax Relief Reconciliation Act of 2001 gradually reduced the top tax rates and raised estate tax exemption levels through 2009. As of January 1, 2010, the estate tax and the generation-skipping transfer taxes (GST) had ‘sunset’ for people dying in 2010. In other words, there was no estate tax in 2010. However, the statute also specified that, if no Congressional action occurred, those taxes would return to their 2001 level in 2011.

TRA 2010 retroactively reinstates the Estate Tax for 2010 with a maximum rate of 35% and an estate tax exemption amount of $5 million. For estates under $5 million, no estate tax return is required except if one opts for ‘portability’ of a spouse’s unused exemption. Indeed, starting in 2011 the part of the exemption amount that is not used upon the death of the first spouse to die can be carried over and used to increase the exemption of the surviving spouse.

For US citizens living abroad, this process is nothing short of a nightmare. They need to take account of both the US estate tax and the foreign country’s inheritance tax – which will require a foreign language translation. Estate plans that are kept wide enough to cover the US side are often not practical enough to offer a solution in the foreign country. The fact that three out of four alternatives have quite high exemption amounts may help overcome double taxation for a number of them.

The uncertainty restricts US citizens married to Europeans even more in their options. Surviving spouses who are not US citizens cannot claim most of the exemptions available to US spouses. E.g., they are not entitled to the ‘un-limited marital deduction’ against inheritance tax in their own name. In the US, Qualified Domestic Trusts offer a solution, but these are hard to implement in a country that does not have trust law. A decision of the Ruling Commission from December 2009 shows the difficulties this entails.

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