# US Taxes: Question on source of foreign inheritance



## dbmck (Jan 20, 2012)

Hi: new ot this forum and grateful for any light that anyone can shed on this question.

My father, an American citizen who lived in Germany from 1980 until his death in 2010, apparently set up a trust in a tax haven country. I appear to be a named as secondary beneficiary ("Zweitbeguenstigten") of this trust. The executor (German in Germany) plans to have the trust liquidated and brought into Germany as cash, pay the German taxes that would have been due on the assets over the past several years (some dictated term by German law; I'm not sure how many years), then disperse the funds as part of my father's estate to his heirs.

It seems to me that the IRS would want their due. One attorney with experience in such cases agreed with me and suggested I take the OVID route. Another, similarly experienced lawyer suggested that, since I am not taking possession of my father's assets, but rather the cash from the liquidated assets, that I have nothing to report. The second lawyer did suggest that, to show a good faith effort to be in compliance, I should file FBARs for 2010-2011, but i do not have any control, signing power, or 50% interest in the trust, so it looks to me like I have no business filing an FBAR.

I suppose both lawyers could be right (the first by the letter of the law; the second by actual outcomes of how it is enforced), but I sure don't want to run afoul of the IRS. Question: does anyone here have experience with just this sort of issue and/or how does one go about locating attorneys with this sort of experience?

Any help is most appreciated.

Dan


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## Bevdeforges (Nov 16, 2007)

Depending on the amount in his estate, your father (or his estate) might be liable for filing both a "final" US income tax return and possibly a US estate tax return.

According to this page from the IRS website Estate Tax there is no estate tax filing if your father's estate was less than $5 million. In any event, federal estate tax is assessed against the estate, and not against the heirs. As long as the executor is going to liquidate the trust and pay up the taxes in Germany before distributing it to the heirs, I'd leave it to him or her. Though you may ask the executor to look into getting tax help from a dual-qualified tax advisor in Germany - part of the listing of English language services here on the US Consulate website: English Speaking Services | United States Diplomatic Mission to Germany Or you could contact one of the tax advisers listed on the consulate's list yourself to get an idea what's involved.

It will also depend a bit on whether or not your father had been filing his US income tax returns since moving to Germany. (My bet is that he wasn't - but that's something for the executor of the estate to figure out and deal with.)

Once the executor has dealt with all the estate issues and has liquidated the trust and paid the taxes due, you should have no further obligation other than if you leave some or all of the money in overseas accounts.
Cheers,
Bev


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