Estate Planning Abroad

Foreign Real Estate and Estate Planning

While foreign property can be a valuable investment, the rules governing inheritance and ownership can vary dramatically from those in the U.S. The last thing you want is for your property to become entangled in bureaucratic complications—or worse, revert to the state—simply because you didn’t make the right preparations.

1. Always Hire a Lawyer

• Assume nothing. Inheritance laws abroad are often very different from U.S. rules, especially in civil law countries (most of Latin America, Europe, and Asia).
• Probate can be lengthy and expensive. Transfer and inheritance taxes can exceed 10% of the property value, and it can take months—or even years—for heirs to gain legal ownership.
• Hire a qualified local attorney. Even if you’re savvy about U.S. law, only a local expert will understand the intricacies of property law in that country. They’ll:
  
  • Verify permits and ensure a clean title
  • Advise you on how best to take title (individually, jointly, through a trust or entity)
  • Help you avoid legal traps that delay or complicate transfer
• Draft a local will. Specify that it applies only to assets in that country, and reference any other existing wills to avoid confusion.
• Understand the process and cost of transfer. In many countries, inheritance tax varies depending on the relationship between the deceased and the heir. Spouses and children usually pay less than distant relatives or unrelated heirs.

2. Should You Use a Foreign Corporation or LLC?

• Probate avoidance strategy. Creating a local entity (corporation or LLC) to hold the property can help your heirs avoid probate entirely.
• Capital gains benefits. In some jurisdictions, selling the entity instead of the property may help reduce or avoid capital gains tax.
• Terms vary. In Spanish-speaking countries, this is typically called a Sociedad Anónima (SA). In English-speaking regions, it may be a “limited company” or “private company.”
• Costs to maintain:
  
  • Legal and tax filing fees, both locally and with the IRS
  • Several hundred dollars annually to maintain the entity
• Caution: If you own the foreign entity directly, it may not avoid probate unless you own it jointly (e.g., 50/50 with a spouse). Once one spouse dies, the remaining shares may still require probate.

3. Trusts and Foundations

• Fideicomiso in Mexico. Foreigners cannot own beachfront property directly in Mexico. Instead, they typically use a fideicomiso (a bank trust).
  
  • Beneficiaries can be named directly on the trust
  • Property can be passed on without probate
  • Offers some asset protection from liens or seizure
• Foundations in civil law countries. These work similarly to U.S. trusts, offering:
  
  • Simplified inheritance
  • Legal protection
  • Greater flexibility in estate planning

4. Taking Title Through a U.S. Trust or LLC

• Best-case scenario. Holding foreign property through your U.S.-based trust or LLC can streamline your estate planning by consolidating everything under one structure.
• Challenges:
  
  • Some countries may not recognize or register foreign entities, or only recognize specific types (e.g., a Delaware corporation but not a Delaware LLC).
  • Registration can be complex, time-consuming, and costly.

5. Bottom Line

Investing in international real estate can be a rewarding part of your financial and lifestyle planning—but only if you take proper legal precautions:

• Understand local inheritance laws.
• Use legal tools (wills, trusts, entities) that minimize bureaucracy and cost.
• Work with a trusted local attorney to ensure everything is structured properly from day one.
• Plan for your heirs as carefully as you planned for yourself.

The right structure can protect your legacy, reduce delays, and spare your loved ones from unnecessary hardship