Debunking Misconceptions in Cross-border Wealth Transfer
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As high-net-worth families become more globally mobile and diversified in terms of their nationalities, residencies and asset situs, understanding international tax and legal issues is crucial for successful wealth transfer.
This article debunks common myths about international wealth transfer — especially when foreign beneficiaries are involved — with a focus on the U.S., U.K., and Australia.
You’ve Heard… But Here’s the Truth
Common Myth | The Truth |
Holding a passport or permanent residency (PR) means you're taxed on global income and gains | Not quite! While holding a U.S. passport or green card means one is subject to worldwide income and capital gains tax, this is not the case for the U.K. and AU. Both these countries imposes income and capital gains tax on one’s tax residency and not one’s passport or visa. The test for tax residency differ between countries but often depends on one’s duration of stay and/or connections to a particular country. |
Nationality / passport triggers global estate tax | Not entirely true! Aside from the U.S. which imposes estate tax on a global basis for U.S. nationals, the U.K. rules look at how long one has resided in the U.K. and not whether one has a U.K. passport or not. AU does not currently have an estate tax. |
Getting PR in the U.S./U.K./AU means you're no longer taxed in your home country | PR is about immigration, not taxation. You can hold PR in one country and still be a tax resident in another. Your home country may still expect a tax return, especially if you continue to reside there, or have locally sourced income/gains. |
Leaving the U.S./U.K./AU and letting your PR status expire means you're off the tax radar | Not so fast. Some countries have exit taxes or lingering tax rules even after you leave. For example, while the physical U.S. green card has an expiry date, one will need to go through a formal expatriation process before one is seen to have exited the U.S. worldwide income/gains tax net. |
My kids living in the U.S./U.K./AU will be taxed on gifts or inheritances of financial assets from me (a non-U.S./U.K./AU resident). | Generally, no, but there may be reporting obligations the recipients have to comply with. However, once the assets are in the hands of U.K. / U.S. beneficiaries, these assets are then subject to U.S. / U.K. estate / inheritance taxes upon the passing of each U.S. / U.K. person. |
How Can Insurance Support Your Estate Planning Strategy?
1. Liquidity Without Probate Delays
In many jurisdictions, estate or inheritance taxes must be settled within months of passing—regardless of whether probate has been granted or sufficient liquidity is available. This can create a cash flow challenge, especially when wealth is tied up in illiquid assets like real estate or private businesses. Life insurance provides immediate liquidity, bypassing probate and allowing your heirs to meet tax obligations without having to liquidate core assets.
2. Equitable Distribution Across Borders
When family members are spread across countries and assets are held in various jurisdictions, achieving a fair distribution can be complex. Life insurance offers a practical solution by providing liquid funds to heirs who may not receive illiquid assets, helping to equalise inheritances across generations and geographies.
3. Preserving Estate Value Against Debts
Outstanding liabilities and estate-related expenses can erode the value of your legacy. Insurance proceeds can be used to settle these obligations, ensuring your heirs receive the full benefit of your estate without the burden of debt.
Illustrative case
Rebecca, age 72, lives in Hong Kong. Her son, Matt recently obtained a U.S. green card and relocated to the U.S. His children are both studying in U.S. universities. Rebecca has a sizeable real estate portfolio and multiple private bank accounts in Hong Kong and Singapore holding her financial portfolio.
She understands that Matt can inherit her assets directly without having to pay U.S. taxes. However, once such assets are in his hands, they could be subject to up to 40% U.S. estate tax upon his and his children’s passing. Hence, she is concerned that her family wealth will be very quickly eroded within 2 to 3 generations of U.S. persons’ passing.
Rebecca spoke to her U.S. lawyers who recommended that she set up a trust to own her non-U.S. assets, rather than bequeathing it directly to Matt. She was told that this would ensure that the family wealth held within the trust would not be subject to U.S. estate tax even if multiple generations of her U.S. family members were to pass on.
However, Rebecca has been unable to identify a trustee willing to take on her real estate portfolio globally without charging significant fees. Upon discussion with her wealth advisors, Rebecca intends to sell down some of her real estate and bequeath the remainder to Matt directly. Her financial portfolio could then be bequeathed into the trust upon her passing, thus insulating the portfolio from the multi-generational U.S. estate taxes.
As for the potential estate tax exposure on the global real estate portfolio upon Matt’s passing, Rebecca instructed her trust to purchase a U.S. compliant life insurance solution over his life. This would ensure that upon his passing, Matt’s children could use the death proceeds to pay for any U.S. estate taxes that are due. Rebecca also requested that the trustee consider purchasing life insurance solutions over the lives of each generation of U.S. persons, to ensure that there is always a sustainable source of liquidity to fund their living expenses and taxes due.
The takeaway: Cross-border wealth transfers can come with big tax bills. Even if you can set up structures to get to a zero-tax outcome at the moment, they may not work forever as laws can change. Hence, having a backup plan — like life insurance — ensures that your family has the cash they need to cover taxes and protects your legacy with peace of mind.