Ask the tax adviser
Inheritance from a non-U.S. citizen
Dear Tax Talk:
What are the tax implications on receiving an
inheritance from non-U.S. parents living in a foreign country? I'm
an American citizen married to a Dane, living in New York. Her parents
live in Denmark and want to limit the amount of taxes we have to
pay on our inheritance.
Since your in-laws are foreigners, there is no U.S. estate tax on
the assets even though the assets are received by U.S. citizens.
And generally, inherited property is free of income taxes. The only
exception is when the property inherited would have represented
an item of income to the decedent, such as an IRA or death benefit
from an employer.
The fact that the property is income-tax free doesn't
change when the inheritance is received from a foreigner. If the
inheritance were received outright in the form of cash, bank deposits,
real and personal property and marketable securities, then there
would be little tax complications by reason of the items being foreign.
However, if you're receiving property in trust or
that was in trust, you may have some tax complications, and I would
recommend consulting a tax adviser specializing in U.S. taxes as
it pertains to foreign transactions.
If the inheritance exceeds $100,000, you need to file
an information report with the Internal Revenue Service providing
certain details of the inheritance. The information is reported
on IRS Form 3520 and is attached to your individual tax return for
the year that you receive the inheritance.
The form is only filed for informational purposes
and does not affect your tax. In connection with completing the
form, it would be a good idea to obtain copies of documents relating
to administration as well as the value of the inheritance.
If you continue to maintain the property overseas,
you'll need to pick up the income from it as you would with any
other income producing investments. In addition, you may be required
to disclose your foreign bank accounts to the U.S. Department of
Treasury (not the IRS) on Form
TD F 90-22.1, Report of Foreign Bank and Financial Accounts.
This form is to be filed separately with the Treasury Department
by June 30.
-- Posted: Jan. 18, 2002