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An Italian Bequest – Case Study

“Going through the process without the help of experienced professionals is risky”

Beth Watson was living in Boston in 2015 when, out of the blue, she received an email informing her that she had been named as the sole heir in an Italian Will.

Beth recognised the name of the executor who had sent her the email, and sadly she recognised the name of her Swiss uncle with whom she had spent so many happy holidays. Her uncle had died, leaving Beth an estate in the southern Italian region of Molise, complete with olive trees, forests, farmland and habitable buildings.

An Italian bequest: Olive trees

Beth was stunned to be named as her uncle’s heir. She also soon realised that this wonderful bequest came with real challenges. Like other Americans who inherit property in Italy, she would have to navigate the Italian legal system, in another language and file a great deal of paperwork. She started out believing the process would be straightforward, but soon concluded she had to find trustworthy professional help. Amongst other things, there were expenses to be paid and accounts to be transferred. Paperwork and bureaucracy which were not easy to handle from Boston.

Every estate is different. Each country has different rules for everything from taxes to who can inherit. Although not applicable in Beth’s case, in Italy, children are entitled to a portion of their parents’ estates, no matter how contentious or distant their relationship is, and can mount legal challenges against other heirs. When multiple countries are involved, as in this case: a Swiss citizen leaves a property in Italy to an American citizen, things become even more complicated.

Going through the process without the help of experienced professionals is risky. It could mean forfeiting an inheritance, paying more tax than necessary or even running foul of the law.

Beth’s inherited property is worth more than $100,000, so it must be reported to the IRS in the USA. These are informational filings that don’t trigger a tax payment, but failure to report can entail harsh penalties. Italian property is generally not subject to U.S. estate tax, but it’s likely tax will be owed to the Italian government. Italy levies an inheritance tax, but unlike in the USA, where this is paid by the estate and then divided among the heirs, Italian inheritance tax is imposed on the person who inherits the Italian assets.

Beth owed about 8% of the value of the Italian estate. She also had to pay her uncle’s funeral and burial expenses, legal bills and other costs associated with settling the estate.

Beth also had to pay property taxes and utility bills. This required opening an Italian bank account, which is not only a hassle but means more IRS filing requirements.

It can be easier to cover those costs if you inherit an income-producing property. While her uncle was alive, the property in the Molise had operated as an agriturismo, or a farm that hosts paying guests.

Beth made a life-changing decision and moved to the property in Italy. She lets out a small stone cottage on the land. She’d like to do more, such as offering art workshops and cookery courses.

However, Beth is constrained by her status in Italy. Ownership of the estate doesn’t automatically confer the right to citizenship or even residency. Beth’s initial application for self-employed residency and “elective residency” were turned down for lack of liquid assets.

We are very hopeful that her next application will be successful.

Because Beth is not yet resident in Italy, she can’t legally operate a business in the country.

She’s not permitted to register a car. She is able to sell a small amount of the olive oil the property produces through a tenant. U.S. citizens are required to report overseas earnings to the IRS and to pay any applicable taxes; they may also have tax liabilities in Italy. If you’re very careful in planning these things, you can generally avoid double taxation by receiving credits for foreign taxes paid. If you don’t plan properly, you can end up paying tax in one country and then in the other.

It can take months, even years, for Italian inheritances to be sorted out. With cross-border inheritances, some paperwork needs to be notarised and, or filed in multiple countries and languages. Unless you have an experienced local inheritance attorney, estate transfers with foreign beneficiaries may become mired in bureaucracy. Misunderstandings are commonplace. If a property needs repairs, someone needs to be around to hand over the keys. If you cannot be onsite, you may need to give someone you trust a power of attorney to act on your behalf.

As previously mentioned, Beth started trying to sort out her Italian inheritance on her own.

After struggling for a year or so, she sensibly realised she needed help and got in touch with us. It took us about a year to get everything sorted out and for Beth to gain legal possession of the estate in Molise. We are looking forward to helping Beth become resident in Italy and to start her new business at her inherited property.

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