Will U.S. Estate Planning Documents Work in Other Countries?

Q. My parents and my husband and I are all considering relocating to Lake Chapala in Mexico, which is a very popular retirement location for Americans because of the low cost of living, sunshine, accessibility, established expat communities, and diversity of living options. Even though my parents will be going there as retirees, my husband and I both work remotely, and our children are both adults — one living in Los Angeles and the other in Houston — so we are planning to move to Lake Chapala also, at least for five to 10 years. I was wondering … as U.S. citizens living abroad, will the estate planning documents we executed with you here in the U.S. still work for us in another country? Also, my husband and I are considering buying a home there in Mexico where we and my parents can live, and we might wind up eventually moving back to United States and renting the home in Mexico. Will our trust that you drafted here in Virginia be able to deal with real estate in Mexico? Thanks for your help!

A. U.S. citizens live abroad or own real estate abroad for many reasons. In some cases, it’s retirement, or a new job opportunity, or the military that took them there. As many Americans are realizing, the U.S. dollar goes a long way in many other countries. Retiring abroad has also become a popular option, be it for a better quality of life, getting health care that is more affordable, or for a better climate.

If you are a U.S. citizen living abroad or owning real estate abroad, you may wonder if the estate planning documents you completed in the U.S. will still work for you. Depending on your individual circumstances, your U.S. estate planning documents may continue to work for you overseas, but in some cases, updates may need to be made.

Issues That May Impact U.S. Estate Planning Documents in a Foreign Country

There are certain issues that may impact the use of U.S. estate planning documents (wills, in particular) in a foreign country. One major issue is validity of your U.S. will abroad.

There are international conventions on wills and trusts that enable a foreign country to recognize another country’s document as valid: The Convention Providing a Uniform Law on the Form of an International Will (known as “The International Will Convention“ and “The Washington Convention”) and the Hague Convention Relating to the Form of Testamentary Dispositions focused on wills.

1. The International Will Convention is similar to a treaty. It was drafted and presented to the international community in 1973. States and countries adopting the Convention agree to recognize the validity of wills executed in other states or countries that have adopted the treaty, provided the will complies with the requirements of the Convention.
   • The full list of signatories to the treaty is: Albania, Antigua and Barbuda, Armenia, Australia, Austria, Belgium, Bosnia and Herzegovina, Botswana, Brunei Darassalam, China, Croatia, Denmark, Estonia, Fiji, Finland, Former Yugoslav Republic of Macedonia, France, Germany, Greece, Grenada, Ireland, Israel, Italy, Japan, Lesotho, Luxembourg, Maritius, Montenegro, Netherlands, Norway, Poland, Portugal, Republic of Moldova, Serbia, Slovenia, South Africa, Spain, Swaziland, Sweden, Switzerland, Tonga, Turkey, Ukraine, United Kingdom.
   • Although the U.S. as a whole has signed the Convention, the United States requires each individual state to ratify the Convention and adopt the Annex into their State Codes. DC, Maryland, and Virginia are among only 22 states, districts, and territories that have ratified the Convention or adopted the annex as law. Others include Alaska, California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Vermont, Wisconsin, and the Virgin Islands.
2. The Hague Convention Relating to the Form of Testamentary Dispositions signifies that a will is valid if its form complies with the internal law:
   • • •  of the place where the testator (the person who creates the Will) made it; or
       • of a nationality possessed by the testator, either at the time when he made the disposition, or at the time of his death; or
       • of a place in which the testator lived either at the time when he or she made the disposition, or at the time of death; or
       • of the place in which the testator had his habitual residence either at the time when he or she made the disposition, or at the time of death; or
       •  so far as immovables (such as real estate) are concerned, of the place where they are situated.

     Forty-two countries are contracting parties to the convention.

   • When it comes to trusts, the Hague Convention on the Law Applicable to Trusts and on their Recognition, simply called the “Hague Trust Convention,” was entered into force in 1992, and is, as of September 2017, ratified by 14 countries. The treaty uses a harmonized definition of a trust and sets conflict rules for resolving problems in the choice of the applicable law. The purpose of the Hague Trust Convention was to gain the consent of countries that do not allow trusts to recognize trusts validly established in countries that do allow trusts. The United States was a vital participant in the international conference that led to the drafting and approval of the Hague Trust Convention and is a signatory to the Convention, but has never ratified the Convention, which means that the United States is not an official party to the Convention.

Bottom line: if you live in or own property in any country that has not adopted these conventions, be sure to consult with an attorney in that country to determine the validity of your estate planning documents. You will likely need to do a will or trust or other appropriate estate planning in the foreign country where you live or own real estate.

Although Mexico, where you asked about, is not a signatory to these conventions, it is possible, though complicated, to have a United States trust own real estate in Mexico. Unlike many jurisdictions, Mexico not only recognizes the existence and uses of trusts but will enforce United States trusts in certain circumstances.

However, this is a complex process requiring numerous translations and various court appearances. Because of this, most Mexican attorneys recommend using a Mexican trust if at all possible. Such a decision requires involvement of both United States and Mexican legal counsel, and tax advice as well. Here’s a good article on this topic.

Note: Please keep in mind that in some countries, even though an American trust can own real estate, there may be severe tax disincentives for putting property in a trust. Consider seeking the advice of a tax professional on all taxation issues.

Estate Planning Tips for U.S. Citizens Living Abroad or Owning Real Estate Abroad

As you can see, international estate planning is complex. Here are some tips for those who live abroad and have had estate planning documents completed in the United States:

• Review your estate plan before leaving the United States: When you take up permanent residency in a foreign country or purchase real estate in a foreign country, you will be subject to local laws governing the settlement of estates. Yet as U.S. citizens you will continue to be subject to U.S. tax laws. Interactions between two legal systems are always complex, so as mentioned, be sure to review your estate plan with an experienced estate planning attorney before leaving the U.S. because changes could be more difficult or costly after moving.
• Know the “domicile” and “residence” rules: Documents prepared with one country in mind may not comply with the laws of another country. For instance, the U.S. and the United Kingdom have a long legal history with respect to trusts, whereas many other countries don’t recognize trusts in their legal systems. You may learn that your U.S. trusts or wills could subject your spouse’s or children’s inheritance to unnecessary or higher foreign estate taxes. For planning purposes, you may decide to retain your “domicile” while changing your residence. A person can have only one domicile or permanent home, whereas a person could have one or multiple legal residencies. Domicile and residence rules can both affect estate planning.
• Watch out for double taxation: If you have connections (domicile, residency, citizenship, business or real estate holdings and/or financial investments) to more than one country, estate taxes may be claimed by more than one jurisdiction upon your death.
• Anticipate your estate’s eventual disposition: In U.S. states, we typically follow “common law” principles when it comes to spousal rights and estate disposition. The situation is generally fairly similar in the United Kingdom and other 54 Commonwealth Countries. However, many other countries compel you to distribute your assets under “forced heirship” principles. For example in “civil law” systems such as France and many Latin American countries, you may be surprised to learn that children automatically inherit assets upon the first parent’s death. But as a result of the recently passed Brussels IV initiative, in most EU countries you will soon be able to select the succession law of your nationality or domicile rather than be subject to the law of the country you are resident in and make your preference explicit in a will.

Planning an International Move? Get Assistance from Experienced Estate Planning Attorneys Today!

International estate planning is complicated. Without professional advice you may expose your family to undesired risks, and a foreign judge in a foreign legal system may decide how your estate is settled, how assets are distributed, and who cares for your children.