Receiving an inheritance can be met with mixed emotions. While the financial windfall will inevitably seem promising, news of an inheritance can also be emotionally overwhelming.
A range of questions may come to mind, especially if the inheritance was passed onto you by a family member living abroad. You might wonder how you can access the inheritance, how you can bring it to the United States, and whether or not you’ll need to pay taxes on it.
In this blog, we will provide answers to each of these questions so you can claim your inheritance with confidence. As with all international financial matters, we encourage you to protect your best interests by seeking the guidance of an international tax professional or estate planning attorney.
The Process of Receiving an Overseas Inheritance
Step 1: Protect Yourself From Fraud
When you are notified of your overseas inheritance, the first step is to ensure its legitimacy.
If you’re informed of your inheritance by phone or email, you must protect yourself by making sure the inheritance is real and not a fraud scheme. Unfortunately, many email-based internet scams deceive people into thinking they are recipients of a nonexistent inheritance.
For example, a lot of these emails will build a narrative around a distant relative with a shared last name who has “unexpectedly passed you their inheritance.” Fortunately, many of these emails are poorly written, riddled with grammatical mistakes, and easy to identify.
These fake emails are typically sent to countless recipients. To check the email’s authenticity, simply paste the text into Google search to see if the language has been borrowed or if others have received the same message.
Many of these scams will request your bank account information to either “pay for administrative fees” or transfer the funds. Never give your bank information until you have definitive proof of the inheritance, have spoken with the executor of the will, and have the approval of your financial professional.
Step 2: Obtaining the Inheritance
Once you have verified the legitimacy of the inheritance, you can then decide how you would like to receive the funds. There are three primary options at your disposal:
- Request a check issued in your relative’s local currency. If the exchange rate is favorable, this may be the most compelling option. Be mindful that checks issued and sent abroad can take several weeks to arrive.
- Use your primary bank to transfer the money. While this may be the easiest route to repatriate funds, your bank will likely charge fees for both the transaction and for converting the payment into US dollars.
- Use a money transfer provider to receive the inheritance funds. By helping you save on exchange rate margins, companies like OFX and Worldfirst provide a less expensive method than transferring funds directly through your bank.
Explore each of these options to see which is most affordable, reliable, and expedient for your individual situation.
While most inheritances will be transferred without hassle, there are a few countries that may involve oversight by the Office of Foreign Assets Control (OFAC). If your inheritance originates from one of the sanctioned countries overseen by OFAC, you may want to consult an attorney before starting the transfer process.
Click here to view the list of OFAC sanctions programs.
Step 3: Meeting IRS Reporting Requirements
In most cases, you will not have to pay taxes on your overseas inheritance. Any outstanding taxes will be handled by your relative’s estate and paid in their home country.
There is only one situation in which you may have to pay taxes on your foreign inheritance.
If the inheritance came from an individual who renounced their US citizenship (or formerly held a Green Card), you may be subject to additional taxes. According to the Internal Revenue Code (IRC), these individuals are considered “covered expatriates,” or former citizens who left the United States with a net worth over $2 million.
If you have received an inheritance (or a financial gift) from a covered expatriate, seek tax and legal counsel to ensure you’re making the most prudent financial decisions.
While most foreign inheritances will never be taxed, you may still have to report them to the Internal Revenue Service (IRS). If the total value of your inheritance (and any other foreign gifts or bequests) exceeds $100,000 in a given year, you must report that information on the IRS Form 3520.
Be aware that any incorrect reporting may be subject to a monthly penalty of 5 percent of the total value.
Obtaining your foreign inheritance requires work, but the reward will be well worth the effort.
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