How To Receive an Inheritance From Abroad

Knowing how to claim inheritance from overseas is essential to avoid legal complications and heavy fines. You need to understand which tax laws are applicable, how to report the wealth, and what forms to fill out. The whole process can seem complex, especially if you’ve never dealt with this before. It can even feel overwhelming when you’re dealing with the loss of a loved one.

With this guide, you’ll learn the next course of action once you become aware of your newfound fortune. Continue reading to understand everything about receiving inheritance from abroad.

Types of Inheritance

When you know you’re receiving an inheritance from abroad, the first thing you must find out is in what form. The rules and procedures you need to follow are different depending on the type of international inheritance you receive.

Broadly speaking, there are three types you must know about.

Money and Investments

A fairly common type of inheritance is in the form of money and investments. Generally, it can be a lump sum of cash in a foreign bank account. However, you can also receive assets like bonds, stocks, mutual funds, and other financial investments. 

First, disclose all the information you have about the foreign bank accounts. This includes the total value in these accounts. If it is above $10,000, you must submit the form for Foreign Bank and Financial Accounts (FBAR).

If the cash gift is more than $100,000, you need to file Form 3520. When you cross certain thresholds, you need to file Form 8938. 

When it comes to foreign investments, the IRS may classify them as passive foreign investment companies (PFICs). You also have to account for exchange rates and may have to deal with foreign taxes. 

Notarized translations of your documents can help when you need to collect or transfer your money.

Land and Real Estate

You can receive foreign inheritance in the form of land and real estate. In this case, the good news is that you don’t have to pay any federal inheritance tax in the US. However, what you do with the property you inherit affects your reporting to the Internal Revenue Service (IRS). 

For example, if you’re renting the property, report this income. If you want to sell the property, you have to account for the capital gains tax. You will also need document translation services while filing your tax reports.

But if you’re keeping the property, you’ll be responsible for the property and other relevant taxes.

Company Ownership

The last type is company ownership. You will have tax responsibilities when you inherit a foreign business. If a financial account is in charge of your stocks, you don’t have to include them when filing Form 8938. However, if there isn’t a financial account and it crosses the IRS’s threshold, it should be in the Form 8938.

What if you’re earning an income from the business’s profits in the form of dividends? US tax laws will be applicable in this situation. You must also account for Controlled Foreign Corporations and Global Intangible Low-Taxed Income (GILTI).

Check if you need certified translation services for this process.

Inheritance Tax

Inheritance tax is what you pay to receive the estate from the deceased. However, several conditions affect your tax liability, as discussed in the following section.

Inheritance Tax vs. Estate Tax

Estate tax is different from inheritance tax. In estate tax, the tax is on the total value of the property before you receive it. The estate will pay for this tax. The US has a federal estate tax, and the percentage depends on the property’s value.

However, the rules for inheritance tax are different depending on the country. For example, the property’s location and your relationship with the property folder can affect your tax liability.

Another factor you need to consider is whether the US has a tax treaty with the deceased’s country. You may also have to deal with probate before becoming the estate’s legal owner.

How To Claim an Inheritance From Abroad

Here’s how to claim an inheritance from abroad when you’re in the US:

1. Get the death certificate: You must get the deceased’s death certificate. We recommend keeping multiple copies because you need to use this document for several legal and tax-related procedures.
2. Obtain the testamentary documents: You must see if there is a will. This document will explain who the executor is. An administrator will be in charge if the executor isn’t available or a will doesn’t exist. You must go through the probate process to receive the financial assets.
3. Follow local tax laws: Every country has different inheritance tax laws. You need to know what they are and comply with these rules. A lawyer in a foreign country can help navigate these laws. You may also have to pay relevant taxes and debts, if applicable in your situation.
4. Transfer the assets: The last step is transferring the assets to yourself. You’ll need to submit various forms and identifying documents during this process. Learning what documents you must submit and what forms you must fill out is important. 

The documents, such as your passport, proof of relationship, or death certificate, are important for inheriting money from overseas. You may need death certificate translation services if these documents are in a different language.

Declaring Inheritance

You must do a few more things once you receive an inheritance from another country. Your legal obligation is to declare what you inherited to the IRS. However, you don’t have to include everything in your tax forms. Here are some basic pointers to help you understand declaring inheritance after receiving inheritance money from overseas.

Be Aware of the Reporting Thresholds

The tax reporting thresholds vary depending on what you inherit from the deceased. If the foreign bank account is worth over $10,000, you must report it to the IRS. 

What about foreign trusts? In this case, it’s the responsibility of the trust to file an information return. 

You should inform the IRS when you receive foreign gifts worth more than $100,000. If you have any offshore assets worth $200,000 or more, you need to report them. Late filings and inaccurate reports will attract a fine.

Hire a Local Tax Professional

Navigating local and international tax laws and legal processes is confusing. Moreover, these laws and processes change regularly. The easiest way to deal with this is to hire a local tax professional. They’ll know what to do and make the best decisions to minimize your tax liability.

For example, you may be better off selling your foreign stocks than holding on to them. They can explain how you can avoid various fees when you inherit certain foreign assets. 

They can also answer questions like, ‘Can a US citizen inherit property in Mexico?’ The answer is yes, but it isn’t straightforward because several factors can come into play.

You can always use an online translation service if your tax professional needs you to translate your financial documents.

FAQ

Is there anything else you want to know about how to bring inheritance money into the US? Go through this section because it answers every question about receiving inheritance from a foreign country.