It is important to understand whose laws will govern the transfer of the property owned outside the U.S. Real estate and personal property located in another country are subject to the inheritance laws of the local government. For instance, in France, the property owner's children must inherit a portion of the property. This can unexpectedly disrupt estate planning that was designed to make maximum use of credit shelter and QTIP trusts.

A U.S. citizen planning to retire permanently in another country should consider how property can be owned in order to manage the transfer of the property to the next generation. Can the property be owned with rights of survivorship? Will the use of a trust or other entity avoid local succession laws? Outside the United Kingdom and its former British colonies, most countries do not recognize trusts, and, if they do, they don't recognize trusts created under the laws of another country.

Recently, more countries in Europe, including Italy, are changing their laws to accept trusts, while other countries, such as Mexico, are using trusts to attract American investors. Before 1994, Mexico restricted foreign ownership of real estate in Mexico to 99-year leases. Now Americans can outright own property within 50 kilometers of Mexico's coast through a bank trust called a fideicomisio. This trust allows the beneficial owner to easily transfer Mexican
property to heirs at death.

Clients should establish a will under the laws of each country where they own a residence. Advisors on both sides of the ocean should be aware of the terms of both the U.S. and the foreign wills to ensure a cohesive estate plan that minimizes taxes. A good place to find professional advisors familiar with international issues is to contact the European American Tax Institute, www.e-ati.com.

Life insurance is a useful tax-planning tool for U.S. citizens living outside this country. Life insurance cash values grow tax-deferred in most countries, and the death benefit is generally received tax-free or taxed at very low rates. Life insurance provides liquidity to pay the income and inheritance tax imposed by other countries where a U.S. tax treaty does not protect inheritances. Most U.S. life insurance companies will insure U.S. citizens living abroad, as long as they maintain U.S. banking relationships and declare their intention to travel or live outside of the U.S. on the application.

Charitably Speaking
Living outside the U.S. will expose your clients to the charitable needs of their adopted country. While tax considerations are usually secondary in philanthropic planning, it is worth noting that there is no U.S. charitable income tax deduction for gifts to foreign charities, nor can a client's charitable remainder trust have a foreign charitable beneficiary.

If taxes are an issue, consider leaving a bequest to a foreign charity to take advantage of a federal estate tax deduction. Otherwise, create a charitable lead trust. The creator of the trust donates income-generating property to the trust. Income is paid to a charitable beneficiary over a period of years. At the end of the term, the property passes to the donor's heirs. While there is no current charitable income tax deduction available, there is an opportunity to provide a gift and estate tax haven for assets expected to appreciate in value.

Protection Planning
Even outside of Third World countries, kidnapping can be a major security issue. With ransom demands passing $10 million, wealthy clients living abroad should seriously consider purchasing kidnap insurance. Kidnap insurance will not only cover the ransom, but will also provide expertise for negotiating hostage retrieval. Anyone who saw the Russell Crowe movie, Proof of Life, about the kidnapping of a corporate executive by rebels in a fictional Latin American country can appreciate the importance of a timely response by professional negotiators. Policies and premiums can vary widely, so it is important to carefully scrutinize terms before purchase.

It is also a good practice to review the client's property and casualty insurance to see if liability coverage is extended outside the U.S.

Establishing Banking Relationships
Currency exchange-rate fluctuation will impact where investable assets should be held. The value of the U.S. dollar can fluctuate from day to day in relationship to other countries' currencies. Know the history of exchange rates over several years, and determine if it makes sense to keep several years of living expenses in local banks. If your client expects relocation to be temporary, such as in the early years of retirement, keep long-term investments in U.S. dollars.