Handling Assets Under Foreign Tax Laws

Alvin just received a frantic call from his daughter. His father, a long-time resident of California, recently passed away. Alvin discovered a previously unknown investment account held in a Swiss bank, containing a substantial sum. Despite having a fully funded revocable living trust, this asset was never mentioned in the trust documents, and Alvin has no idea how to proceed with including it in the estate administration. He’s terrified of potential penalties and doesn’t know where to begin—the cost of inaction could be significant.

This scenario, unfortunately, is becoming increasingly common. As wealth becomes more global, estate plans frequently encounter assets held under the laws of foreign jurisdictions. While a well-drafted California revocable living trust forms the bedrock of a sound estate plan, simply having the trust isn’t enough. Proper identification and inclusion of foreign assets is crucial for a smooth and legally sound administration.

What Happens When a Trust Doesn’t Cover Foreign Assets?

The initial instinct for many clients is to simply “add” the asset to the trust after death. However, this is rarely possible. A revocable living trust functions by legally transferring ownership of assets during your lifetime. Once the grantor (the person creating the trust) passes away, the trust operates based on the assets already titled in its name. If a foreign account wasn’t previously transferred, it remains outside the trust and subject to probate—or worse, potentially overlooked entirely.

This is where things get complex. Depending on the country and the type of asset, the laws governing its transfer upon death can vary dramatically. Ignoring these laws can result in significant tax liabilities, legal complications, and delays in distributing assets to beneficiaries. It’s not merely a matter of translating documents; it’s understanding a completely different legal framework.

How Do We Account for Foreign Real Estate Within a Trust?

Real estate held outside the United States presents unique challenges. While transferring your home into your revocable trust does not trigger reassessment, the eventual distribution to your children will trigger a Prop 19 reassessment to current market value unless the child moves in as their primary residence within one year. This is further complicated by foreign property laws. Simply retitling the property into the trust’s name may not be sufficient; local legal counsel in that jurisdiction is often essential. We must ensure the transfer is recognized and valid under their laws, as well as California law.

What About Foreign Bank Accounts and Investments?

Foreign financial accounts require careful attention. The U.S. has strict reporting requirements for foreign assets, and failure to comply can lead to substantial penalties. Furthermore, the process of transferring these accounts to the trustee can be lengthy and require specific documentation. It’s essential to gather information about the account, including the bank’s policies regarding inheritance, required forms, and any applicable taxes.

Often, a foreign bank will require an original death certificate, a certified copy of the trust document (translated if necessary), and a letter from the successor trustee outlining their authority to act. The bank may also require a sworn affidavit or other legal documentation verifying the trustee’s identity and the validity of the trust.

Protecting Digital Assets Across Borders

Digital assets, such as cryptocurrency and online accounts, pose another layer of complexity. Without specific RUFADAA language (Probate Code § 870) in your trust, service providers like Apple, Google, and Coinbase can legally deny your successor trustee access to your digital photos, emails, and cryptocurrency. This is especially problematic with accounts held on foreign servers, where legal access may be even more difficult.

The CPA Advantage: Tax Implications and Valuation

As both an Estate Planning Attorney and a Certified Public Accountant (CPA) with over 35 years of experience, I bring a unique perspective to these complex situations. The ability to analyze the tax implications of foreign asset transfers is critical. Understanding the step-up in basis, potential capital gains taxes, and valuation issues is essential to minimize tax liabilities for your beneficiaries. My CPA background allows me to navigate these complexities more effectively than many attorneys who rely solely on external tax advisors.

What if an Asset is Discovered After the Trust is Administered?

Occasionally, an asset is discovered after the trust administration process is complete. For deaths on or after April 1, 2025, if a primary residence intended for the trust was accidentally left out (valued up to $750,000), it qualifies for a ‘Petition for Succession’ under AB 2016 (Probate Code § 13151). CRITICAL DISTINCTION: This is a Petition (Judge’s Order), not an Affidavit. This offers a streamlined process to transfer the asset, but it’s crucial to act promptly. For assets exceeding this value, or located outside of California, a full ancillary probate proceeding may be required in the foreign jurisdiction.

Business Interests and the FinCEN Reporting Requirement

If your estate plan includes foreign-registered Limited Liability Companies (LLCs), be aware of the FinCEN regulations. As of March 2025, domestic U.S. LLCs held in a living trust are exempt from mandatory BOI reporting; however, trustees managing foreign-registered entities must still file updates with FinCEN within 30 days.

Finally, it’s important to note that the OBBBA permanently set the Federal Estate Tax Exemption to $15 million per person, effective Jan 1, 2026, meaning the primary focus of most Living Trusts is now avoiding probate and protecting privacy, rather than minimizing federal taxes.

What determines whether a California trust settlement remains private or erupts into public litigation?

Success in trust administration depends on more than just the document; it requires active management of assets, precise accounting to beneficiaries, and careful navigation of tax rules. Whether dealing with a blended family or complex real estate, understanding the mechanics of trust law is the only way to ensure the grantor’s wishes survive scrutiny.

Ultimately, the success of a trust depends on the details—proper funding, clear terms, and a trustee willing to follow the rules. By anticipating friction points and documenting every step of the administration, fiduciaries can protect the estate and themselves from liability.

Verified Authority on California Trust Law

• Trust Validity (Probate Code § 15200): California Probate Code § 15200
  The foundational statute confirming that a trust requires property to be valid. This is the legal basis for the “funding” requirement—without transferring assets (deeds, accounts) into the trust, the document is legally empty.
• Revocability Presumption (Probate Code § 15400): California Probate Code § 15400
  Confirms that California trusts are presumed revocable unless stated otherwise. This grants the settlor the flexibility to change beneficiaries, trustees, or terms as life circumstances evolve.
• Primary Residence Succession (AB 2016): California Probate Code § 13151 (Petition for Succession)
  Effective April 1, 2025, this statute acts as a backup for funding errors. If a primary residence (up to $750,000) is left out of the trust, this Petition to Determine Succession avoids a full probate administration.
• Property Tax Reassessment (Prop 19): California State Board of Equalization (Prop 19)
  Essential for all trust creators. While the trust avoids probate, it does not automatically avoid property tax increases for heirs. Specific planning is required to navigate the “primary residence” requirement for children.
• Federal Estate Tax Exemption: IRS Estate Tax Guidelines
  Reflects the permanent increase to a $15 million per person exemption (effective Jan 1, 2026). This shifts the planning focus for most Californians from tax avoidance to asset protection and probate avoidance.
• Digital Asset Access (RUFADAA): California Probate Code § 870 (RUFADAA)
  Without this statutory authority included in your trust, your digital legacy (crypto, social media, cloud storage) may be permanently locked away from your family by service providers.