As American families become increasingly global, more parents are exploring how to leave U.S.-based investment or retirement accounts to children who live abroad.

While U.S. law generally allows it, the process can be complicated — not because of federal rules, but because investment firms may impose restrictions that surprise account owners and beneficiaries.

In a recent discussion, elder law attorney Harry Margolis explained what families need to know and why planning ahead can avoid administrative headaches and tax issues.

Below is a transcript of the discussion, edited for clarity and brevity.

Robert Powell:  If you are a U.S. citizen with an investment account, is it possible to leave that account to someone living outside the United States — a son, daughter, or relative? Here to talk about this is Harry Margolis, author of “Get Your Ducks in a Row.” Harry, welcome.

Harry Margolis: Good to see you again, Bob.

Elder law attorney Harry Margolis explains how brokerage rules can complicate leaving U.S. accounts to children or relatives living overseas.

Photo by Alexander Spatari on Getty Images

How common is this estate planning question?

Robert Powell: I am not sure how common this question is, Harry, but it is certainly interesting.

Harry Margolis: It is an interesting question and not so uncommon. People are much more international and mobile today. In fact, I just received an email over the weekend from someone whose daughter lives in France. She wanted to know how French inheritance and tax rules work if she leaves money to her daughter, which I could not advise on. I told her she needed to speak with a notaire in France.

But the question about leaving a U.S. investment account to someone overseas is more straightforward and, I think, more common.

Yes, you can name a beneficiary living overseas

Harry Margolis: You can certainly name someone overseas as the beneficiary of an account. You can do this through a payable-on-death or transfer-on-death designation, or in your will or trust. Legally, the inheritance rules are the same regardless of where the beneficiary lives.

The real issue is that investment companies sometimes make things difficult.

When investment firms restrict accounts

Harry Margolis: In the case that prompted the question, the individual said their stepchild could not be listed as the transfer-on-death beneficiary because the stepchild lives in Japan. Sometimes you cannot fight city hall — if that is the firm’s rule, it is the rule.

We run into similar problems with trust accounts when a trustee lives overseas. A lot of this happens with Fidelity Investments for us. If a trustee lives outside the United States, Fidelity will not allow any trading in the account. The trustee can hold existing investments, sell investments, and make distributions, but they cannot make changes to the investment mix. And Fidelity does not care whether the trustee is an American citizen. They only care where the trustee lives.

They also do not care if there are co-trustees living in the United States. If any trustee is overseas, the restrictions apply.

Why policies vary and why account owners should check

Harry Margolis: Anyone with a U.S.-based investment or bank account who has a beneficiary or trustee living overseas needs to check the firm’s policies. It varies by institution and can have meaningful consequences.

For the person who submitted the question — someone with a named beneficiary but no trust — the solution might be to create a trust. They could set up a revocable trust with a U.S.-based trustee and name the stepchild as trust beneficiary.

When the account owner dies, the U.S.-based trustee can liquidate the funds and send them to the beneficiary abroad. That is often the cleanest workaround.

Do firms distinguish between U.S. citizens and non-citizens living abroad?

Robert Powell: Do investment companies distinguish between a nonresident U.S. citizen and a foreign national?

Harry Margolis: In my experience with Fidelity, they make no distinction. It does not matter whether the person is a citizen or noncitizen. What matters is where they live. A noncitizen trustee living in the United States is acceptable, and a U.S. citizen trustee living overseas is not.

Best first step: Start by checking policies

Robert Powell: So the best thing to do is check with the firm?

Harry Margolis: Yes. Start by asking about the company’s policies. And often the solution is to use a revocable trust with a U.S.-based trustee.

Special considerations for retirement accounts

Robert Powell: Anything else?

Harry Margolis: One additional point has to do with retirement accounts, such as IRAs. You can name a non-U.S. beneficiary for those as well. We have not run into problems with institutions making distributions to a foreign beneficiary.

But the custodian must withhold 30 percent to cover taxes on the deferred income. A beneficiary living in the United States would receive a 1099 and file a tax return, so no withholding is required. But someone living in Japan or France may not file a U.S. return, so withholding is mandatory.

Robert Powell: And presumably a beneficiary could reclaim that withholding?

Harry Margolis: Yes, but it can be complicated. An accountant could better explain how to do it and whether the effort is worth it.

Robert Powell: So this is one of those situations where it takes a team of professionals — estate attorneys and CPAs — to help you figure out your money.

Harry Margolis: Unfortunately, that is true.

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