Receiving inheritance money from overseas — tax and transferring funds

TransferWise
05.26.19
7 minute read

If you’ve recently been notified of a foreign inheritance, you might be wondering what to do next. This article contains all you need to know, from how to verify the inheritance is legitimate, and protect yourself against fraud, to submitting the right IRS paperwork to cover your windfall.

We will also cover the ways you might repatriate your payment, including low cost international transfers using the google exchange rate, with TransferWise. Let’s get started.

Inheritance scams — beware. Verify the legitimacy of your inheritance

It is common for con artists to try to deceive vulnerable people, by saying they have come into an unexpected inheritance, using emails, text messages and phone calls. These scams may be professional and elaborate, including multiple people, and official looking documents. You might have seen emails of this type described as the ‘Nigerian’ email scam - as this is where the approach originated. However, these days, you may receive inheritance and other scam emails from anywhere in the world.

Here’s how it works. You may get a message from someone posing as a lawyer, or the executor of a will for someone who has recently died. You’ll be told that the deceased was a distant relative of yours, who died without heirs. Occasionally, the message will state that - although you’re not necessarily related to the deceased - you will be able to claim the inheritance based on a shared family name, due to some loophole in local law.

The message will go on to ask you for your personal details, such as social security number or bank information, so you can receive your money. Or you’ll be asked to make a payment to cover tax, admin, or other fees before your inheritance is released.

But of course, this is a scam. If you make a payment, you can be sure you’ll never see it, or your ‘inheritance’ again.

Being asked to hand over personal details is known as phishing, or identity theft. Once a con artist has your information, they can access your bank account or other personal data, stealing money and wrecking your credit rating as they go.

How to verify an inheritance email

There are a few things you can do to protect yourself, and check if a message you receive is the real deal.

  • Scam emails often are generic in wording, and include spelling and grammar mistakes
  • A genuine message will include a phone number you can call to ask more specific questions, and verify the details - although you should still be on your guard, even if you manage to talk to someone about the email
  • Google the exact wording of the email, or the company or individuals named in it. Often people share details online of fraudulent messages, to warn others, so you may be able to quickly see if it’s a scam
  • If the message purports to be from a lawyer or other professional, they’ll be registered with the equivalent of the Bar Association in their country, so you can check their legitimacy
  • Remember it is actually fairly unusual to receive an inheritance out of the blue from a relative you didn’t know about. If it seems too good to be true, it’s probably a scam

What to do if you receive an inheritance scam message

If you receive an email or other message about an inheritance, which you believe to be a scam, or a phishing email, you can report it to the Federal Trade Commission (FTC).

  • Email the FTC at spam@uce.gov, and the specific anti-phishing workgroup at reportphishing@apwg.org, including the message you received
  • Forward suspicious text messages to 7726 (SPAM)

If you’re concerned that you may have fallen victim to a phishing email, text message or call, and handed over information which may leave you vulnerable to identity theft, it’s important to report it right away. There’s a helpful step by step guide available, at the identitytheft.gov website, which offers advice based on the type of information which you may have exposed or had stolen.¹⁻⁴

Understanding estate tax and inheritance tax obligations

If you receive an inheritance overseas, you may need to pay taxes in the country the inheritance originates from. Usually, this tax can then be offset against any tax you may owe on the windfall in the US, so you don’t need to pay twice. More on that in a moment.

What is inheritance tax?

One of the foreign taxes you may need to pay is inheritance tax. This would be set by either a country’s government, or at a local level, and is paid by the person inheriting, rather than the estate.

If inheritance tax isn’t familiar to you, it may be because here in the US, only 6 states impose inheritance tax, which is payable on top of any federal tax owed.

What is estate tax?

Estate tax is different to inheritance tax because it is paid before the estate is divided up amongst heirs. This means the executor would usually be liable to sort out and pay estate tax, if this is the legal structure in the country your inheritance originates from.

To put this into the context of the US, here federal estate taxes may be payable on large estates worth over $11.2million, with a further 12 states and the District of Columbia also imposing estate taxes of their own.⁵

Foreign Taxes and Transfers

If you get an overseas inheritance, you’re likely to need to pay tax on the amount in the country the payment originated from.

To bring the money back to the US, and avoid paying tax twice on the same amount, you need to complete and submit Form 706-CE, Certification of Payment of Foreign Death Tax. This will ensure the IRA know about the tax you have already paid on the inheritance so this can be offset against any obligations in the US.⁶

Transfering or otherwise bringing your inheritance to the United States

Once you have sorted out the administration of your inheritance, and paid any foreign tax owed, you’ll want to bring your money back to the US.

It’s relatively simple to repatriate funds, using your regular bank, or an international transfer provider. However, the fees and exchange rates used will make a big difference to the amount you end up with in your US account in the end.

When you’re choosing a transfer provider, you should check out both the upfront fees, and the exchange rate which will be used to convert your payment into dollars. Exchange rates matter, and your bank won’t necessarily offer the best rate available. Instead, they might add a markup to the mid-market exchange rate, which they then keep as profit. That can mean you pay more than you have to for your international transfer.

You can check the exchange rate you’re offered against the mid-market rate, using an online currency converter or a simple Google search.

Compare the overall costs, including both the upfront fees and the exchange rate markup, against an alternative provider like TransferWise. All transfers are carried out using the mid-market rate with no markup, and just a simple, transparent fee. This can mean Transferwise international payments are much cheaper than cross-border transfers with a regular bank.

It is important also to know that the Office of Foreign Assets Control (OFAC) controls or bans international money transfers from a small number of countries into the US. This is because of active sanctions programs which limit financial transactions with countries or regimes which pose a national security threat. If your inheritance originates from a country under sanction, you may not be able to transfer it to your local US bank account.

Check out the countries which are under active sanctions, online, at the OFAC website.⁷

Forms you may need for your inheritance

There are a few documents you might need to submit to the IRS or other bodies, based on your personal circumstances. Here are some common forms needed:

  • If you hold the equivalent of over $10,000 in an overseas bank account at any time during the year, you may need to report it under FBAR - Report of Foreign Bank and Financial Account. You’ll have to use FinCEN Form 114 for this report.⁸
  • Inheritances from abroad which are worth over $100,000 must be reported to the IRS using Form 3520.⁹
  • If you’re physically carrying cash over $10,000 into the US, or having a large payment couriered to you, you’ll need to declare it using FinCEN Form 105.¹⁰
  • It can help to know, also, that your bank is obliged to submit a form called FinCEN Form 104, if you transfer over $10,000 from a foreign beneficiary. You shouldn’t need to complete this document, but it may help to let your bank know if you’re expecting a large overseas payment, so it does not flag as suspicious with their fraud department

If you are unsure about what paperwork you need to legally repatriate your overseas inheritance, check with a lawyer or international tax advisor. The penalties for failing to pay taxes, or declare your income can be steep, so professional advice can help you avoid issues down the line.

If you have received a legitimate inheritance from overseas, you may need to take a few steps to make sure you’re complying properly with local and US law, before you can bring your payment home. Get professional advice if you need it - and don’t forget to find the best way to remit your money back to the US, looking at both upfront fees and the exchange rates on offer. See if you can save with TransferWise, today.


Sources:

  1. https://www.consumer.ftc.gov/articles/0005-identity-theft 10 May 2019
  2. https://www.consumer.ftc.gov/articles/0002l-nigerian-email-scam 10 May 2019
  3. https://www.consumer.ftc.gov/articles/how-recognize-and-avoid-phishing-scams 10 May 2019
  4. https://www.identitytheft.gov/Info-Lost-or-Stolen 10 May 2019
  5. https://www.nerdwallet.com/blog/taxes/which-states-have-estate-inheritance-taxes/ 10 May 2019
  6. https://www.irs.gov/forms-pubs/about-form-706-ce 10 May 2019
  7. https://www.treasury.gov/resource-center/sanctions/pages/default.aspx 10 May 2019
  8. https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar 10 May 2019
  9. https://www.irs.gov/pub/irs-pdf/f3520.pdf 10 May 2019
  10. https://help.cbp.gov/app/answers/detail/a_id/778/~/declaring-currency-when-entering-the-u.s.-in-transit-to-a-foreign-destination 26 May 2019
  11. https://www.bizfilings.com/toolkit/tools/tools-forms/form-104-currency-transaction-report 26 May 2019

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.

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