Offshore Accounts in Estate Planning, Probate, and Administration: Reporting Requirements, Penalties, Pitfalls to Avoid

Description

The government assesses and collects FBAR liability and penalties from beneficiaries and executors after a decedent's date of death and after assets are distributed. Failure to account for offshore accounts and assets can significantly derail the intent of a decedent's estate plan. Trusts and estates counsel must align planning strategies with current U.S. tax law to avoid unintended tax liability, probate issues, and estate administration challenges of foreign assets and accounts.

With thoughtful planning, clients may avoid unexpected aspects of U.S. tax law that could significantly impact family wealth. Estate planners must review a client's foreign assets and accounts and explore the use of certain strategies to protect such assets and other methods of preserving wealth and minimizing income, estate, and gift taxes. Determining a taxpayer's compliance with foreign reporting obligations is a critical step when reviewing, settling, or reporting a decedent's estate.

The penalty for non-willful FBAR violations is $10,000; this can be waived for reasonable cause. Willful non-filing, however, can result in penalties of $100,000 or 50 percent of the account balance, whichever is larger. The U.S. Supreme Court's recent decision in Bittner v. U.S. provides some relief from hefty FBAR penalties for non-willful violations, ruling that it applies on a per report rather than a per account basis. However, the risk of penalties still remains and taxpayers must continue to be proactive with their reporting requirements and filing obligations.

Listen as our panel of experts discusses identifying trusts and estates with foreign reporting obligations, the current government initiative to assess penalties for offshore accounts and assets, avoiding probate, and best practices for bringing taxpayers into compliance.