Receiving a financial gift from a relative is always special. Whether it is a birthday gift or an entire inheritance, a gift is meaningful for the recipient. However, the legal processes associated with properly accepting an inheritance from overseas are quite complicated, and individuals should seek legal advice to make sure they take the correct steps involved in protecting and receiving the money during an overseas transaction.
How to Deal with the IRS
The government likes to stay abreast of overseas inheritances. To make sure the money stays secure; individuals must fill out the following corresponding paperwork for the IRS:
- Form 706-CE. This form is for people who leave the money in an overseas account. The IRS wants to make sure they know about any foreign taxes paid on the inheritance. Without filing the 706-CE, beneficiaries cannot receive the credit from the U.S. government for their federal taxes.
- Form 3520. The IRS needs this form for individuals to transfer overseas inheritance money to the United States. It declares a transfer of property, but it does not mean a person must start paying income or estate taxes.
Cooperate with the IRS
Failing to complete these forms can result in serious penalties. For every month that the inheritance goes unreported it will cost 5% of the total sum each time. If this continues over the course of several months, it can have a severe impact on the total amount of the foreign gift. Although filing the paperwork may not be enjoyable, the stress-free results are more rewarding than losing funds.
How To Report a Gift
Individuals who receive an overseas gift worth over $100,000 must report it to the IRS, and aggregation is required when all assets come from relatives. However, if a person receives $75,000 from their parents and $30,000 from a non-relative friend, a report is not demanded. If the parents gift $110,000, the amount must be reported immediately.
Is There an Inheritance Tax?
As an heir to an overseas inheritance, a person is not required to pay a tax on the money. The estate stays in charge of taxes, while the heir simply waits to receive the money at a future date.
Medical and Tuition Gifts
Gifts of no specific purpose matching $100,000 or more must be reported, but if a family member or friend gifts the same amount as a medical payment or towards school tuition, the amount does not need to be reported. To ensure the process goes smoothly, individuals should make sure the payments are sent directly to the specified institution to avoid any confusion with the IRS.
Receiving an overseas inheritance is a special experience, but each person involved in the process should be prepared to take the appropriate steps to make certain the money is reported and protected properly.
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