Laws Concerning Inheriting Money From Overseas

by Tom Streissguth

    If you expect an inheritance from outside the United States, it's a good idea to familiarize yourself with the laws concerning transfer of assets from a foreign country to a U.S. bank or other institution. Estate tax, both federal and state, may be in effect under certain conditions and there are requirements for declaring the transfer of foreign assets to the United States.

    Estate Taxes

    The federal estate tax applies to estates of U.S. citizens and legal residents, no matter where their actual place of residence is. If you inherit from someone who remains a U.S. citizen, but whose assets lie offshore, the estate is still subject to this tax. The rule applies to property, investments and accounts no matter where they may be located and there is no legal limit on the amount of foreign assets you can inherit.

    Foreign Property

    If you inherit money or property located in the United States, this may also be subject to the estate tax even if a foreign company or trust owns the assets. Any foreign assets you inherit from a non-citizen or non-resident is not subject to estate tax; however, the foreign country may levy inheritance taxes on these assets.

    Inheritance Tax

    As the heir, you do not have any obligation to file estate tax forms with the Internal Revenue Service, no matter where the inheritance is located. The estate pays the tax, not the heirs. The federal government does not levy taxes on inheritances, although a few states do, including Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania and Tennessee.

    Foreign Taxes and Transfers

    If you receive an inheritance from abroad and you pay taxes to a foreign government on that inheritance, you declare that amount to the IRS on Form 706-CE. The IRS allows you to take a credit for any taxes paid to a foreign government, offsetting the amount due in the United States. If you bring the money into the United States, however, you must file Form 3520, which declares any transfer of property and gifts from a foreign country. This declaration does not subject the assets to income or estate tax.

    About the Author

    Tom Streissguth has authored more than 100 books for the school and library market, including works for the Gale, Enslow, Facts on File and Lerner Publications. He is the founder of The Archive, an independent publisher of historical journalism collections, and holds a Bachelor of Arts from Yale University.