Want to Avoid Your Own “Succession” Drama? How Renouncing Your US Citizenship Before Death Can Preserve Your Family’s Generational Wealth.

A new trailer has debuted for the fourth season of the hit HBO series “Succession.” The show follows the exploits of the Roy family as they battle for control of their father’s media empire. While millions are glued to their screens for the latest round of legal maneuvering and back-stabbing, a real-life succession drama could hit closer to home for US citizens living abroad.

Like the family patriarch in “Succession,” many people who put in the hard work and long hours to build a life and accrue wealth do not want the IRS taking a large percentage from their estate when they die. US citizens, domestic or abroad, are subject to the US estate tax regime in death, regardless of where they live in the world.

So how does it work? Each year, the US determines the number known as the Unified Tax Credit, which sets the amount that an “individual can gift during their lifetime and pass on to heirs before any gift or estate taxes apply.” From a very high level, after a US citizen dies, the IRS will add up everything they own worldwide, and any amount over the credit amount is hit with a high rate of tax on the fair market value.

The current exemption level is the highest it has ever been following the Trump tax cuts of 2017. For an individual who dies in 2022, the exemption amount sits at a VERY healthy $12.06 million USD. That sounds like great news for many US citizens living abroad because if one dies with less than that amount, no estate tax is owing.

The problem is that the exemption will change depending on the party in power. Democrats tend to prefer a lower credit, while Republicans prefer a higher one. Even under the Trump tax cut laws, the exemption is set to drop by more than half, to $5.49 million, in 2026. And maybe even lower if the Democrats expand their power and pass legislation before 2026. This could be devastating to families with US members around the world.

For example, if one is worth $30 million USD, when the credit is $5.49 million, the IRS comes after 40-65% of around $24.51 million, which translates to between $9.8 to $15.9 million USD. Ouch. It’s no wonder the US estate tax is referred to as a generational wealth killer.

The US estate tax payable gets worse the lower the exemption is during the year of passing. Most Democrats argue for an exemption amount of between $750,000 – $2 million USD, with a tax rate above that amount at death of 50%-65%. Most Republicans are pushing for an exemption of between $3 million -$5 million USD, with a tax rate above that amount at around 40%.

The fun doesn’t stop at the US estate and gift tax rules. For those looking to give assets in life or death to a generation beyond one that is directly below them, there is a “Generation Skipping Tax” (GST) at the same high rate on the value of those assets. This is used to avoid estate planning that would hypothetically avert the level of estate tax exposure by (e.g.) giving to grandchildren instead of children. The theory is that older generations will die before the younger ones and should not be able to avoid the estate tax regime at their death. One could be looking to “skip” a generation of heirs to reduce the tax burden on their estate. One cannot deliberately skip a generation in favour of the younger generation to bypass the estate tax.

We’ve seen first-hand how the US estate tax regime can devastate a family business intended to be passed down to the next generation. Families have had to sell their companies, medical practices, legal practices, etc., just to pay the estate tax because one or more family members were US citizens at death. Clearly, this is not the legacy that people want to pass along to the next generation, and properly renouncing one US citizenship before death can solve this problem altogether.

 In our US Citizenship Renunciation webinars, I often joke that the US estate tax is very simple to plan for. You just need to know when you’ll die, what order your family members will die in, how much you will be worth when you die, and who will be in political power in the year you die. I say it facetiously, but that statement underlies the problematic situation that US citizens find themselves in. As we’ve seen south of the border, things can change very rapidly. Thankfully, renouncing your US citizenship properly eliminates the stress and financial pitfalls surrounding your family succession plans. Expats who properly renounce their US citizenship before death are not subject to the US estate tax on their worldwide assets and don’t have to worry about the political landscape in the US in the lead-up to their passing!

We understand that US citizenship renunciation is an important decision for you and your family. The implications should be carefully discussed before any decision is made.

If one decides that renouncing is right for them and their family, it must be done properly.  The US has many potential landmines (exit tax, inheritance tax, disbarment from the US for life, loss of benefits, etc.) that one must successfully navigate during the process. If US citizenship or green card status is not terminated correctly, one can be subject to tens of thousands of dollars in failure-to-file penalties, as well as an exit tax and covered expatriate status. Our firm can work with you and make sure these pitfalls are avoided.

Our team of US lawyers represents between 600 and 900 US citizens and green card holders who decide to renounce their US status correctly every year on six continents – more than any other firm in the world. We’ve helped thousands of US expats and successfully terminate their citizenship status – but, again, it MUST be done the right way.

If you or a family member is a US citizen or green card holder considering renunciation, we invite you to visit our dedicated webpage for more information. This page contains links to register for our upcoming renunciation webinars. You can find one tailored to your geographic location in our events listings.

These webinars thoroughly review everything you need to know about the US citizenship renunciation process and available options should you decide to take the next steps.

Click here to view our upcoming Renunciation Webinars and register

If you would like to get the process started on addressing your US issues immediately (with legal fees in mind), please schedule a one-hour call or video conference consultation with me by:

• Signing up on our virtual calendar or
• Contacting Jeanine Wilk at jwilk@moodystax.com or 403-693-5124