CHAPTER 11
INSURANCE AND ESTATE PLANNING
| As you make preparations for your stay overseas, it would be wise to
review your insurance coverage and estate planning strategies and make any
necessary changes before you leave. Changes in family circumstance, level
of wealth, or tax laws may require corresponding changes in your estate plan. You've worked hard to accumulate an estate, so it makes sense to protect your assets and to devise an estate plan that helps you or your beneficiaries hold on to it by reducing taxes and probate costs. Changes can be made from abroad, but it is much easier to do so from home, and knowing that your finances are in order will give you important peace of mind.
You can expect to be approached by numerous salesmen who will attempt to
|
My lawyer said I didn't need one . . .! |
INSURANCE
LIFE, HEALTH, AND DISABILITY INCOME
Insurance coverage is an important protection for you and your family
against calamity. Before you go abroad, it is a good idea to review
your insurance coverage thoroughly, as some aspects of your coverage may
not apply to claims made abroad. Life insurance is not generally a
problem. If your life insurance contract was written by a US carrier
and has been in effect for at least two years, it should pay your estate
at death regardless of your location, subject to any policy
restrictions.
However, regarding health, major medical, and disability income
coverage, be sure to check with your carrier, as there may be an
exclusion for claims made outside the US. If your company provides you
a health policy in the host country, you will probably be OK. Check
with your employer. For property and casualty coverage your homeowner's
policy may not be effective for insuring property outside the US.
Again, be sure to check on this.
KIDNAP INSURANCE
While many Americans at home carry insurance coverage for virtually
everything in both their personal and professional lives, it's probably
safe to conclude that insurance against kidnapping is generally not on
the list. However, for the American executive who is working abroad,
having an insurance policy that specifically provides this coverage is
definitely worth careful consideration. This is especially true if the
assignment is in a politically volatile location of the globe.
Unfortunately, kidnapping has become a major security issue in several
countries outside of North America. In the last several years,
statistics have shown an escalation of incidents in Italy, the
Philippines, Columbia, Pakistan, and Brazil. Obviously, no one plans on
being victimized by this sort of criminal activity. But when it does
occur, the financial fallout can be overwhelming to the families
involved. Consider the following scenario: An executive in a foreign
country leaving his office is suddenly confronted by three men, each
with firearms. He is forced into a vehicle, which quickly flees from
the scene. A ransom for his release is set at $1,000,000. The ransom
is paid in full and he is released within 30 days. Fortunately for his
family, this gentlemen had an insurance policy that specifically covered
such an occurrence. As a result, neither he nor his family suffered any
significant financial loss as a result of this criminal act.
On the flip side of the coin, consider this scenario: Another
executive's drive to the office is suddenly interrupted at a stop
light. Two men with weapons emerge from the car in front of him and
force their way into his car, taking him hostage. A ransom for his
release is set at $1,500,000. After months in captivity, the ransom is
paid and he is released. Unfortunately, he had no insurance policy that
specifically covered kidnapping, and as a result, the financial
ramifications were overwhelming.
Scenarios like these usually catch their victims quite off guard.
Because ransom payments can run well over $10,000,000, the families of
the victims often encounter tremendous difficulty in raising the actual
cash. Even if the family is in the top net-worth bracket, its financial
assets are usually represented through real estate, buildings, factories
or inventory. Realistically, none of these assets can be transformed
into cash overnight. To create cash, these assets need to be either
sold or borrowed against and this can be a lengthy process. This is why
it is important to consider this additional coverage.
Unlike other forms of insurance, policies that specifically cover kidnap
and ransom are offered by only a limited number of companies. Although
the various policies have much in common in terms of coverage, the
premiums may vary considerably. It is therefore important to obtain
more than one quote for such coverage. Because these policies are
administered individually, there are several key factors that determine
the premiums:
· Is the policy for one individual or for the entire family?
· Does the policy cover more than one incident of kidnapping within
a 12
month period?
· What is the risk level of the specific country?
· Does the policyholder(s) who is to be insured maintain high or low
visibility?
· Does the policyholder(s) maintain a certain security regimen?
· Do the travel routes of the policyholder(s) constitute a security
risk?
· What restrictions are applicable in the policy?
· How much of a deductible can the policyholder(s) afford?
Without diluting the importance of these factors, the primary
consideration for any "Kidnap and Ransom" policy still lies in the
expertise that will be utilized for hostage retrieval. The negotiating
team is probably more important than the policy. The policy should
provide for both an experienced negotiator and the facilities necessary
to ensure that the hostage is returned unharmed. The negotiator should
be available to the insured within one day of the kidnapping, and should
be consistently available until the matter is resolved.
ESTATE PLANNING
Estate planning strategies can vary greatly depending on your particular
needs and intentions. For young couples with children, a primary
consideration is assuring the financial well-being of the children if
both you and your spouse should die. Most parents use trusts for
on-going investment management and decision-making for the children
until they are sufficiently responsible to manage their inheritance for
themselves. For individuals with growing and substantial estates, the
estate plan needs to be designed to reduce taxes and probate costs as
well as provide a mechanism for the beneficiaries' protection and
guidance. For individuals with a sizable estate who want to make sure
the funds go down the family bloodline and not to a new spouse or others
after their demise, a QTIP trust is often the chosen strategy. You need
to be sure that your estate plan is best suited to your present
circumstances and future intentions for the assets you have accumulated
in your lifetime.
The way your property is titled and the type of property it is often
determine the manner in which your beneficiary receives it. There are
three ways to transfer property at death:
BY OPERATION OF LAW
Most often, a jointly-held asset titled in the names of the decedent and
co-owner will go to the co-owner as surviving owner at the decedent's
death. Usual titling is "tenants by the entireties" or "joint tenants
with the right of survivorship (JTWROS)."
BY CONTRACT
A named beneficiary will receive the asset under a contractual
arrangement such as a life insurance or pension/profit sharing
beneficiary.
BY WILL
Property passing by will is usually subject to probate-the process
whereby an accounting of these assets is made by the executor with the
local court of the decedent's domicile. Assets titled in the sole name
of the decedent individual will look to the dispositive provisions of
the will for distribution. Your executor will make an accounting of the
assets, and settle all debts and expenses before paying out to the
beneficiaries the remainder of the estate. If there is no will, your
assets will be distributed according to the intestacy provisions of your
state of domicile. If you hold a US passport, your will comes under US
regulations.
REVIEW YOUR WILL
One type of estate plan involves placing all assets in joint name, which
means the survivor gets all, thereby eliminating the need for a will.
Although this strategy may be attractive in its simplicity, it does have
some problems. For example, if both parties die together, the status of
the estate is not settled. Jointly-held property may reduce planning
flexibility as the survivor takes the assets as survivor regardless of
any tax savings provision in the will. In other words, tax-efficient
estate plans often require certain ownership structures. Joint tenancy
may or may not offer the most tax savings.
Thus it is generally advisable to have a clear and legal will. If you
haven't as yet executed a will, do so before you leave. To make a valid
will, you must be of legal age, of sound mind, and free from undue
influence. The will must usually be signed in the presence of a minimum
number of witnesses (how many depends on the state in which it is being
made). In many states, the will can be admitted to probate without the
requirement of locating witnesses of the will if executed before a
Notary Public. If you already have a will, be sure to review it to be
sure it still reflects your wishes. You should also check with your
attorney to be sure it is still valid. If you have minor children, you
may want to look carefully at who will be appointed their guardian(s)
should they be orphaned. You may want to consider making provisions for
temporary guardians in the host country so that the children are taken
care of until they can be joined with their permanent guardians at home.
For any foreign assets, you may need a foreign will. Your Stateside
will may or may not be accepted or qualify in a foreign jurisdiction.
DISINHERITING A SPOUSE OR CHILDREN
Some relationships change during the course of a lifetime, and some
individuals want to exclude the inheritances of their spouse in an
estate plan. Be aware of the law in your state if you are considering
this. Unless a pre- or post-nuptial agreement has been signed, state
law will protect a spouse who is being written out. For such agreements
to be valid, each individual should be represented by separate counsel
and make full disclosure of his/her respective assets. Many a
well-intentioned pre-nuptial agreement has been put aside because these
two issues were not properly addressed. Taking against the will of a
deceased spouse entitles the surviving spouse to a certain share of the
decedent's estate. Each state has its own legislation regarding the
percentages or amounts. Community property states have their own
approach to these situations, and should be reviewed if they affect
you. Review and update your estate plan with your advisor to put
matters into proper order before you leave.
TRUST PLANNING
Trusts can be an important component of estate planning for many
individuals. Trusts can be implemented during your lifetime or at your
death; they can be funded currently or funded at a future time (at
death, for example). If properly structured, trusts can reduce probate
costs. The trust and its assets are not part of public record during
the probate process as are wills. Professional management of the trust
assets can continue without interruption.
If you are stationed abroad, be aware that trusts are a common law
phenomena and may not be recognized in a civil law jurisdiction.
GIFTING
For US citizens, residents and non-resident aliens, a gift tax return,
Form 709, should be filed, and any gift tax paid, on an annual basis,
following the close of the calendar year in which gifts are made. If a
donor dies, the gift tax return must be filed no later than the due date
for the donor's estate tax return, including extensions.
POWER OF ATTORNEY
Most states allow individuals to appoint someone as their attorney in
fact to act for them in the event of some disability or incapacity.
These powers terminate at death, at which point the will becomes
effective. You may assign someone a general power of attorney giving
the designee power to make all necessary legal decisions on your behalf,
or you can limit the power of attorney to specific domains (for example,
only decisions pertaining to your real estate held in the US).
Determine for yourself which fits you better.
While you are overseas, any power of attorney you have assigned
pertaining to your US-based assets should be valid while you are out of
the country. Should you wish to assign power of attorney over any of
your property based in a foreign country, you will need to consult legal
counsel there.
LIVING WILL
Many states will legally honor an individual's written wishes (often
called a Living Will) regarding the extent to which medical life support
measures are to be used to maintain life. The family physician should
be aware of and have a copy of such a document. If you want this kind
of advance directive to be valid in your host country, you will need to
determine whether such a document is honored there and how it needs to
be legally registered.
INFORMATION NEEDED FOR GOOD PLANNING
In order to properly prepare an estate plan for you, your advisors will
need various data and information. The following is a list of data
often requested, along with an Estate Planning Questionnaire. You can
speed up the process by having such data and information available.
· Financial statements for the business for the last three years (for
business owners only)
· Income tax returns for personal and business the last three years
· Gift tax returns for the last three years
· Fiduciary returns for the last three years
· Investment records for the last three years
· Wills
· Trust agreements created by you or for you (or your family)
· Marital agreement (if any)
· Partnership or corporate agreements that affect you as an individual
(for business owners only)
· Buy-sell agreements, purchase options, and employment contracts (for
business owners only)
· Insurance policies (life, health, disability, etc.) and annuities
· Household inventory
· Any appraisals done for property covered under insurance policies
(rings, silver, collections)
· Any other agreements which would affect your financial planning
· Benefit data (supplied by your employer), including:
- Group life insurance plans
- Salary death benefit plans
- Stock option/stock purchase plans
- Pension plans
- Profit sharing plans
- Bonus/Incentive plans
- Deferred compensation plans
- Salary continuation plans
- Hospitalization/Major medical plans
- Post retirement benefits
- Other benefit programs
ESTATE PLANNING QUESTIONNAIRE
Client ____________________________
Spouse ___________________________
Child _____________________________
Child _____________________________
Child _____________________________
Fair Market Value Titled In:
Sole |
Joint |
Spouse's |
Children's |
|
| Assests | $____ | $____ | $____ | $____ |
| Cash / Cash Equivalent | $____ | $____ | $____ | $____ |
| Other | $____ | $____ | $____ | $____ |
| Stocks | $____ | $____ | $____ | $____ |
| Bonds | $____ | $____ | $____ | $____ |
| Mutual Funds | $____ | $____ | $____ | $____ |
| Residence (Equity) | $____ | $____ | $____ | $____ |
| Real Estate (Equity) | $____ | $____ | $____ | $____ |
| Art / Collectibles | $____ | $____ | $____ | $____ |
| Jewelry | $____ | $____ | $____ | $____ |
| Life Insurance (Face Amt.) | $____ | $____ | $____ | $____ |
| Closely-Held Business | $____ | $____ | $____ | $____ |
| Pension / Profit Sharing | $____ | $____ | $____ | $____ |
| IRA | $____ | $____ | $____ | $____ |
| Keogh | $____ | $____ | $____ | $____ |
| Tax Sheltered Annuity | $____ | $____ | $____ | $____ |
| Other (specify) | $____ | $____ | $____ | $____ |
| Totals | $____ | $____ | $____ | $____ |
ESTATE SETTLEMENT AND ADMINISTRATION
In addition to updating your estate plan, you should become familiar
with how an estate is settled and administered at death. This is known
as the probate process. If you are named an executor or personal
representative in a will, you will be responsible for a great deal of
legal activity. For example, there are forms to be filed and possible
taxes to be paid. The more you can learn about the process Stateside,
the easier it will be for you to manage should you have to do this while
abroad. Being familiar with the process will also help you manage,
organize, and keep records of your affairs in a way that will facilitate
the proper execution of your estate in the event of your death. What
follows is an overview of the probate process and the actions that
generally need to be taken in settling an estate.
The gross estate includes the value of all property owned by the
decedent at death. A number of deductions can be taken from this amount
to reduce it to the taxable estate. Such deductions include funeral and
administration expenses, casualty losses, debts and mortgages, and
deductions for property passing to a surviving spouse or charity.
The estate tax return (Form 706) is used to report and pay the estate
tax for US citizens or residents and must be filed within nine months
after death unless an extension is granted. The estate tax return of a
resident decedent must be filed with the IRS Service Center that serves
the state in which the decedent was domiciled at the date of death. If
there is more than one executor or administer, the return must be signed
by all. In addition to the tax return, the executor or administrator is
required to send a certified copy of the will for a US resident with a
tax return to the IRS.
Failure to pay the tax with the return incurs a penalty of one-half of
one percent of the estate tax liability for each month that the tax
remains unpaid to 25 percent and is in addition to the late filing
penalty. Failure to file the estate tax return, pay the tax, or keep
records each constitutes a misdemeanor punishable by a fine of not more
than $25,000, imprisonment of not more than one year, or both. If the
estate tax return is not filed on time, the IRS will impose a penalty of
five percent of the estate tax liability per month, up to 25 percent,
unless delay is due to reasonable cause. If you have the responsibility
of a fiduciary, being out of the country and unable to perform your
duties may or may not provide a sufficient reason for not filing on
time. If failure to file is deemed to be due to fraud, the penalties
range from 15 percent to a maximum of 75 percent.
Form 706NA is filed for non-resident aliens. An estate tax return must
also be filed by a non-resident alien if part of the estate situated in
the US exceeds a certain minimum. The return of a non-resident (whether
a citizen or not) must be filed with the IRS Service Center in
Philadelphia, PA. If the decedent was a non-resident citizen, the
following documents must be filed with the return:
· An inventory of property and a schedule of liabilities, claims against
the estate, and expenses of administration filed with the foreign court
and certified by a proper official
· Any return filed under a foreign inheritance or death tax act and
certified by a proper official (if the estate is subject to such a
foreign tax)
· A certified copy of the will
· If the executor is to be represented by someone else before the IRS,
a
power of attorney filed on Form 2848 and signed by the fiduciary. Form
8821 (Tax Information Authorization) is to be used to authorize any
designee to inspect and/or receive confidential information for the type
of tax and years listed on the form.
SUMMARY
The information that you need to know is on a case-by-case basis but
I’ll try to give some guidelines. Get an international attorney,
accountant, and banker both Stateside and in your host country if
possible. Below is a summary of some of the issues you will need to
consider while putting your finances in order while you are abroad.
· Wills
- Find out whether the country is common law or civil law (there is a
difference).
- Have a US will for US property.
- Have a foreign will for certain properties like real estate held
outside the US.
· Living Will
- Check local law once you are there.
- Find out whether you can give an advance directive there.
· Power of Attorney
- Should be good for US based assets.
- Check local law for any property based in foreign country.
· Asset Protection Trust
- You may want protection of your assets in a strong jurisdiction,
especially if you are employed in a country which has weak political
environment, weak banks and unstable currency. Check with a
major bank
to see if it makes sense. Is the protection worth the cost/fees?
-
· Currency
- Find out how the US dollar stands against the currency of your new
host country and whether there is much fluctuation.
· Compensation
- Find out whether you will be paid as a local in foreign currency or
carried on US payroll or have split employment contract, paid
part in US
dollars on US contract and part in local currency on foreign
contract.
· Insurance
- Life: Should be okay with US contract if policy is more than two years
old.
- Health/Disability Income: Check with carrier before you leave.
Company group coverage should work.
- Property/Casualty: May not cover property accompanying you on foreign
assignment.
· Estate Plan
- Review before you go; a US plan should cover most assets.
· Income Tax
- Have someone who understands both countries.
· Personal Investment
- Some locations make coordination with US difficult. Find someone
competent there and here to pay attention to your holdings.
· Pension/Profit Sharing Benefits
- Find out whether you will be forced to participate in foreign plans,
what will happen to that plan when you come home (frozen in
that
country, portable, what currency, taxability on accumulation,
contribution and distribution?).
· Banking
- Determine your banking needs and compare with your bank’s
capabilities. Compare costs and services; big international
bank, local
regional bank, private bank.
