Foreign Accounts and Foreign Inheritances: The Reporting Your Family Will Inherit

Most cross border estate problems are not tax problems. They are reporting problems, and the penalties for getting them wrong are frequently larger than any tax that was owed. Families discover this after a death, when someone finally opens the file.

Three filings that matter

The FBAR, filed with FinCEN rather than the IRS, is required of a U.S. person with a financial interest in or signature authority over foreign financial accounts whose aggregate value exceeded $10,000 at any point during the year. Ten thousand dollars in the aggregate, not per account. A dormant savings account in the home country plus a small pension plus a joint account on a parent’s affairs can clear it without anyone realizing.

Form 8938, filed with the income tax return, reports specified foreign financial assets above higher thresholds. For a married couple filing jointly and living in the United States, the trigger is more than $100,000 on the last day of the year or more than $150,000 at any time during it. Living abroad raises those thresholds substantially. It overlaps with the FBAR without replacing it, so both may be required for the same account.

Form 3520 is the one that catches families at inheritance. A U.S. person who receives more than $100,000 in gifts or bequests from a nonresident alien individual or a foreign estate during the year must report it. Note what this is and is not. It is a reporting obligation, not a tax. Receiving an inheritance from abroad is generally not taxable income. Failing to report it is nonetheless expensive.

Why this lands on the estate

Two ways. First, a decedent’s own unfiled reports do not disappear at death, and the personal representative may inherit both the exposure and the duty to address it. Second, the heirs create fresh obligations the moment they receive foreign assets, and an heir who takes over a foreign account becomes a filer in their own right.

The executor’s practical problem is worse than the legal one. Foreign banks are often unwilling to speak to a U.S. representative without documents issued in their own country, which loops back to needing local counsel and a local grant.

What to do while everyone is alive

Write it down. The single most valuable document in a cross border estate is a plain list of every foreign account, insurer, property, and business interest, with institution names, account numbers, and a local contact. Executors lose more value to assets they never find than to taxes.

Get current before a death rather than after. Where filings have been missed, there are established procedures for coming into compliance, and they are far more available to a living taxpayer who comes forward than to an estate discovered later.

Tell your executor. Naming someone who does not know that foreign assets exist, and who has no contact in that country, guarantees delay.

And be careful with well-meaning shortcuts. Adding a U.S. child to a foreign account for convenience can create a reporting obligation for that child, and sometimes a gift, without solving the succession problem it was meant to solve.

This week: Write the list your executor will need: every foreign account, insurer, property, and business, with institution names, account numbers, and a local contact. Then check whether last year’s FBAR and Form 8938 obligations were met.

If your family has accounts or property abroad, the reporting picture should be checked while it is still fixable. Call or text 512.761.8479.