Life insurance how to designate an international beneficiary

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
lostlost
Posts: 7
Joined: Fri Apr 10, 2015 6:14 pm

Life insurance how to designate an international beneficiary

Post by lostlost » Sat May 25, 2019 6:49 pm

So I live in the US and bought a couple life insurance policies. Most of my families are outside of the US and lives in third world country in SE Asia. Is it possible to designate an international beneficiary? I mean they won't have social security and no way of establishing ID ect. How would one go about doing that?

fabdog
Posts: 786
Joined: Wed Jan 16, 2013 1:59 pm
Location: Williamsburg VA

Re: Life insurance how to designate an international beneficiary

Post by fabdog » Sat May 25, 2019 6:57 pm

I would ask my insurance company how to do this, what documentation they'd need etc so you can set it up properly in advance. Each insurance company likely has forms to help you accomplish this

Mike

crre
Posts: 40
Joined: Fri Apr 12, 2019 8:07 pm

Re: Life insurance how to designate an international beneficiary

Post by crre » Sat May 25, 2019 7:14 pm

be aware that the estate tax exemption is very low for non-citizens. even if you yourself are a citizen, probably your relatives are not. i'm guessing an insurance payout is not considered part of your estate, but even so, it would become part of your relatives' estate once the policy paid out. not a problem until they themselves die, at which point their estate could be liable for a large tax bill if they have not moved the money out of the states before they die.

so: if the policy is for a large amount and/or if you are planning on leaving other u.s. assets to your non-citizen family, make sure you and they understand the tax issues. even better consult an estate attorney who might have a solution in the form of a trust.

Gill
Posts: 5765
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Life insurance how to designate an international beneficiary

Post by Gill » Sat May 25, 2019 8:33 pm

crre wrote:
Sat May 25, 2019 7:14 pm
be aware that the estate tax exemption is very low for non-citizens. even if you yourself are a citizen, probably your relatives are not. i'm guessing an insurance payout is not considered part of your estate, but even so, it would become part of your relatives' estate once the policy paid out. not a problem until they themselves die, at which point their estate could be liable for a large tax bill if they have not moved the money out of the states before they die.

so: if the policy is for a large amount and/or if you are planning on leaving other u.s. assets to your non-citizen family, make sure you and they understand the tax issues. even better consult an estate attorney who might have a solution in the form of a trust.
Aren’t you talking about the marital deduction for non citizen spouses? Otherwise, I don’t know what exemption you mean. Also, I don’t understand the risk you are talking about for the beneficiaries. Aren’t you thinking of US real estate owned by an alien? Your advice to the OP seems less than accurate.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

crre
Posts: 40
Joined: Fri Apr 12, 2019 8:07 pm

Re: Life insurance how to designate an international beneficiary

Post by crre » Sun May 26, 2019 12:52 am

Gill wrote:
Sat May 25, 2019 8:33 pm
crre wrote:
Sat May 25, 2019 7:14 pm
be aware that the estate tax exemption is very low for non-citizens. even if you yourself are a citizen, probably your relatives are not. i'm guessing an insurance payout is not considered part of your estate, but even so, it would become part of your relatives' estate once the policy paid out. not a problem until they themselves die, at which point their estate could be liable for a large tax bill if they have not moved the money out of the states before they die.

so: if the policy is for a large amount and/or if you are planning on leaving other u.s. assets to your non-citizen family, make sure you and they understand the tax issues. even better consult an estate attorney who might have a solution in the form of a trust.
Aren’t you talking about the marital deduction for non citizen spouses? Otherwise, I don’t know what exemption you mean. Also, I don’t understand the risk you are talking about for the beneficiaries. Aren’t you thinking of US real estate owned by an alien? Your advice to the OP seems less than accurate.
Gill
my advice was to make sure the op understands the tax issues, and even better to consult with an estate attorney. i stand by that advice.

the risk (in the case of insurance as per the op's question) is to the estates of the beneficiaries, so the beneficiaries of the beneficiaries.

regarding the particulars, it was based on a recent consultation with an estate tax attorney. i am in a similar situation to the op, as my spouse is not a u.s. citizen, therefore there is risk to our children if i die first, leave assets to him, and then he dies before moving certain assets out of the states. the problem is not limited to the marital deduction, nor to real estate. random googling turns up this, for instance:

https://m.taxesforexpats.com/articles/n ... tates.html

"There is a flip side to the advantageous tax policy regarding U.S. assets held by the foreigners. The U.S. imposes a 40% estate tax rate on U.S. assets above a $60,000 exemption threshold on assets of the deceased nonresidents. Foreign estates become subject to U.S. estate taxation with respect to their U.S.-situated assets.

U.S.-situated assets include American real estate, tangible personal property, and securities of U.S. companies. A non-resident’s stock holdings in American companies are also subject to estate taxation..

Certain assets that are exempt from U.S. estate tax include securities that generate portfolio interest, bank accounts not used in connection with a trade or business in the U.S., and insurance proceeds.

The estate of a nonresident alien may deduct from the gross estate the value of property passing to the decedent’s surviving spouse if the spouse is a U.S. citizen or resident alien regardless of whether the spouse lives in the U.S. or abroad. However, if a spouse is also a non-resident alien, the unlimited spouse exemption does not apply."

again, don't believe everything you read on the internet, nor everything i say here. do consult a good estate tax attorney if the sums are considerable, and make sure the attorney is familiar with international issues. also, make sure the beneficiaries are aware of the tax implications of investing the insurance proceeds in the u.s.

Lee_WSP
Posts: 1205
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Life insurance how to designate an international beneficiary

Post by Lee_WSP » Sun May 26, 2019 1:12 am

Life insurance is not part of estate. It is a contract benefiting a third party between the insured and the company. There are no estate taxes on such a transaction add it's not a estate.

typical.investor
Posts: 1257
Joined: Mon Jun 11, 2018 3:17 am

Re: Life insurance how to designate an international beneficiary

Post by typical.investor » Sun May 26, 2019 1:18 am

crre wrote:
Sun May 26, 2019 12:52 am
Gill wrote:
Sat May 25, 2019 8:33 pm
crre wrote:
Sat May 25, 2019 7:14 pm
be aware that the estate tax exemption is very low for non-citizens. even if you yourself are a citizen, probably your relatives are not. i'm guessing an insurance payout is not considered part of your estate, but even so, it would become part of your relatives' estate once the policy paid out. not a problem until they themselves die, at which point their estate could be liable for a large tax bill if they have not moved the money out of the states before they die.

so: if the policy is for a large amount and/or if you are planning on leaving other u.s. assets to your non-citizen family, make sure you and they understand the tax issues. even better consult an estate attorney who might have a solution in the form of a trust.
Aren’t you talking about the marital deduction for non citizen spouses? Otherwise, I don’t know what exemption you mean. Also, I don’t understand the risk you are talking about for the beneficiaries. Aren’t you thinking of US real estate owned by an alien? Your advice to the OP seems less than accurate.
Gill
my advice was to make sure the op understands the tax issues, and even better to consult with an estate attorney. i stand by that advice.

the risk (in the case of insurance as per the op's question) is to the estates of the beneficiaries, so the beneficiaries of the beneficiaries.

regarding the particulars, it was based on a recent consultation with an estate tax attorney. i am in a similar situation to the op, as my spouse is not a u.s. citizen, therefore there is risk to our children if i die first, leave assets to him, and then he dies before moving certain assets out of the states. the problem is not limited to the marital deduction, nor to real estate. random googling turns up this, for instance:

https://m.taxesforexpats.com/articles/non-us-citizens/federal-estate-tax-considerations-for-foreigners-investing-in-the-united-states.html

"There is a flip side to the advantageous tax policy regarding U.S. assets held by the foreigners. The U.S. imposes a 40% estate tax rate on U.S. assets above a $60,000 exemption threshold on assets of the deceased nonresidents. Foreign estates become subject to U.S. estate taxation with respect to their U.S.-situated assets.

U.S.-situated assets include American real estate, tangible personal property, and securities of U.S. companies. A non-resident’s stock holdings in American companies are also subject to estate taxation..

Certain assets that are exempt from U.S. estate tax include securities that generate portfolio interest, bank accounts not used in connection with a trade or business in the U.S., and insurance proceeds.

The estate of a nonresident alien may deduct from the gross estate the value of property passing to the decedent’s surviving spouse if the spouse is a U.S. citizen or resident alien regardless of whether the spouse lives in the U.S. or abroad. However, if a spouse is also a non-resident alien, the unlimited spouse exemption does not apply."

again, don't believe everything you read on the internet, nor everything i say here. do consult a good estate tax attorney if the sums are considerable, and make sure the attorney is familiar with international issues. also, make sure the beneficiaries are aware of the tax implications of investing the insurance proceeds in the u.s.
Look into a QDOT trust. And get a new estate tax attorney if they didn’t mention it.

It doesn’t need to be set up now, but if you (the American) die first, your husband (the non-American) can set it up before estate tax filing is due and spend out of the trust (restrictions apply so research it). The money stays out of his estate (it stays in yours), and when he passes your estate is finally settled. This, it’s like your money going from you to your child (normal estate/lifetime gift rules apply), but your husband spends for his needs after you are gone.

In any case, the OP’s family should obviously simply move payment to their country of residence.

typical.investor
Posts: 1257
Joined: Mon Jun 11, 2018 3:17 am

Re: Life insurance how to designate an international beneficiary

Post by typical.investor » Sun May 26, 2019 1:21 am

Lee_WSP wrote:
Sun May 26, 2019 1:12 am
Life insurance is not part of estate. It is a contract benefiting a third party between the insured and the company. There are no estate taxes on such a transaction add it's not a estate.
I believe the concern was if the beneficiaries kept the money in the US. On their death there would be estate tax with a low exclusion.

Obviously the beneficiaries should simply move the money home.

Lee_WSP
Posts: 1205
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Life insurance how to designate an international beneficiary

Post by Lee_WSP » Sun May 26, 2019 1:24 am

typical.investor wrote:
Sun May 26, 2019 1:21 am
Lee_WSP wrote:
Sun May 26, 2019 1:12 am
Life insurance is not part of estate. It is a contract benefiting a third party between the insured and the company. There are no estate taxes on such a transaction add it's not a estate.
I believe the concern was if the beneficiaries kept the money in the US. On their death there would be estate tax with a low exclusion.

Obviously the beneficiaries should simply move the money home.
It was also a neither a question, nor concern of the OP's. If the surviving beneficiary wants to keep the money in the US that becomes their problem, not the insured's.

typical.investor
Posts: 1257
Joined: Mon Jun 11, 2018 3:17 am

Re: Life insurance how to designate an international beneficiary

Post by typical.investor » Sun May 26, 2019 1:33 am

Lee_WSP wrote:
Sun May 26, 2019 1:24 am
typical.investor wrote:
Sun May 26, 2019 1:21 am
Lee_WSP wrote:
Sun May 26, 2019 1:12 am
Life insurance is not part of estate. It is a contract benefiting a third party between the insured and the company. There are no estate taxes on such a transaction add it's not a estate.
I believe the concern was if the beneficiaries kept the money in the US. On their death there would be estate tax with a low exclusion.

Obviously the beneficiaries should simply move the money home.
It was also a neither a question, nor concern of the OP's. If the surviving beneficiary wants to keep the money in the US that becomes their problem, not the insured's.
Well if it were my family, I’d prefer they knew. Perhaps a salesperson down the line will be promoting something or other and selling them on something in the US.

Hard to make a good decision when you don’t know what the consequences are, isn’t it!

Post Reply