What to do if you inherit property overseas
Artist Carey Maxon was living in Brooklyn in 2015 when she received an email informing her that she had been named sole heir in a will in Italy.
It was not a scam.
Maxon recognized the name of the executor who sent the message - and of the architect whose farm she had lived on after college. Ermanno Gardani had died, leaving her a Tuscan estate, complete with 1,000 olive trees, forests, farmland and two homes, as well as an apartment in Milan.
"I was so stunned," said Maxon, 40. "And also so certain of the impact it would have on my life - my living situation, my job, proximity to my friends and family - that I did not tell anyone for 48 hours." She biked to work in a daze, grieving for the friend she hadn't seen in 13 years and processing the enormity of the gift.
"It had a fairy-tale feeling," she said. "I was overwhelmed by the gesture."
Maxon soon realized that the fantastical bequest came with real challenges. Like other Americans who inherit property overseas, she had to navigate a foreign legal system - in another language - and file a daunting amount of paperwork. She had to find trustworthy professional help. There were expenses to be paid, accounts to be transferred, olives to be harvested. She felt an enormous responsibility to safeguard Gardani's creative and agricultural legacy.
"I kicked into the most thorough, the most determined I had ever been," she said. "The stakes were high."
Every estate is different - and that's especially true with international inheritances. But there are common issues that most heirs face.
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When an American inherits overseas property from a grandmother in Brazil or a cousin in Japan, it falls under foreign statutes.
"Wherever the real estate is, the laws of that country govern," said Leigh-Alexandra Basha, an expert in international estate and tax planning at McDermott Will & Emery in Washington.
Each country has different rules for everything from taxes to who can inherit. In France, children are entitled to a portion of their parents' estates - no matter how contentious or distant their relationship was - and can mount legal challenges against other heirs. An American who inherits a plot in Thailand won't have it for long, as foreigners are generally banned from owning land.
When multiple countries are involved - a Swiss citizen leaves a home in Canada to American and Italian grandchildren - things can become dizzyingly complicated.
"I personally would not handle this alone - and I do it for a living," said Greg Rosica, a tax partner with Ernst & Young.
Going through the process without the help of experienced professionals is risky. It could mean forfeiting an inheritance, paying more taxes than necessary or even running afoul of the law.
No matter where a bequest is based, if the property is worth more than $100,000, it must be reported to the IRS, Basha said. If the property is held by a corporation and is worth more than $16,000, it must be reported to the IRS.
"These are informational filings that don't cause a tax," she said. But especially in the case of corporate ownership, "failure to report it can mean very harsh penalties."
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The good news: Overseas property is generally not subject to U.S. estate tax. The bad news: You'll probably owe money to a foreign government.
Most countries levy an inheritance tax, said David Kuenzi, founding partner of Thun Financial Advisors, a Wisconsin firm specializing in cross-border investment management. Instead of being paid by the estate, which is then divided among the heirs, an inheritance tax is imposed on the person who is left the assets.
"In some places, the tax may not be a big deal," Basha said. "In other places, it might be a very big deal."
Yahne Miorini, principal at Miorini Law in Vienna, Virginia, has a client who inherited a castle in the Beaujolais region of France. "In the U.S. we have $11 million that we can pass on free of estate taxes," she said. "France is not on that schedule." Her clients' tax bill came to 55 percent of the value of the castle.
Maxon owed about 8 percent of the value of the Tuscan estate. She also had to pay funeral and burial expenses, legal bills and other costs associated with settling an estate.
"That is a big upswing in expenses for a young artist living in Brooklyn," she said.
Heirs may also have to pay property taxes, gardeners and utility bills. That usually requires opening a foreign bank account, which is not only a hassle but means more IRS filing requirements, Basha said.
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It can be easier to cover those costs if you inherit an income-producing property. But in some countries, you might not have the right to rent it out, or it might be difficult to repatriate your profits. Maxon's property had operated as an agriturismo, or a farm that hosts paying guests. She rents a small stone cottage out on Airbnb, and has received five-star reviews. She'd like to do more - such as establish an artist-in-residence program and offer cooking classes - but is constrained by her status in Italy. Ownership of the estate doesn't confer the right to citizenship or even residency. Maxon's applications for self-employed residency and "elective residency" were turned down for lack of liquid assets. She's hoping her third application is accepted.
"I can't legally have a business here because I'm not a resident," she said. She's not permitted to register a car. She is able to sell a small amount of the olive oil the property produces through a tenant.
"We need to make the property financially viable for upkeep," she said. "To keep the trees strong, we need activity."
U.S. citizens are required to report overseas earnings to the IRS and to pay any applicable taxes; they may also face a bill abroad. "If you're very careful in planning these things, you can generally avoid double taxation," Kuenzi said, by receiving credits for foreign taxes paid. "If you don't, you can end up paying tax in one country and then in the other."
Should you eventually decide to sell that beach condo or chalet, those gains will be subject to taxes, too. And if that property is located in India, China or Japan, it may be very difficult to take the proceeds home, Basha said. They're among the countries with exchange controls - limits on buying and selling currency - or similar restrictions. In this case, it's seller beware.
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It can take months - even years - for overseas inheritances to be sorted out.
"As soon as you are overseas, everything goes slower," Miorini said.
With foreign transfers, paperwork may need to be notarized and filed in multiple countries and languages. Local probate attorneys lacking experience with estates with foreign beneficiaries may make them a lower priority, Miorini said. Misunderstandings are commonplace. If a property needs to be appraised, someone needs to be around to hand over the keys.
The process can even be held up by geopolitical conflicts. One of Basha's clients recently inherited several lots in Lebanon; having them appraised is no simple task, as it's hard to find willing buyers or comparable properties for real estate scattered near the border of Syria.
It took Maxon about a year to gain possession of the Tuscan estate. Without a residency visa, she's not yet able to live there year-round. Her tourism visa allows her to be in the country for a maximum of three months at a time in a 180-day period.
"When there's [olive] harvest, when there's pruning, I'm there," she said. Two farmers who live on the property look after it when Maxon is absent. "They are in their 70s and have a world of things to teach me. It feels like it would be a failure on my part if I didn't see this through. I know [Gardani] did this with a lot of trust."