Currency Conversions Considerations in Estate Planning: How to Protect Your Estate From Losing Its Value

Matthew Farago (Texas Tech University School of Law) recently published a paper, Currency Conversions Considerations in Estate Planning: How to Protect Your Estate From Losing Its Value, 2023. Provided below is an abstract to the Paper:

This comment discusses the effects and implementation of currency conversion planning in an estate. Potential areas of concern are addressed, there are few, if any, negative consequences of incorporating currency conversion planning into estate planning practice. Currency conversion planning for foreign estates would impact a quarter of the United States population today and the effected population will continually increase. It is surprising that with such a large potential impact and the simplicity of implementing these practices, currency conversion planning for estates has not been practiced or discussed before.

At present, estates are being significantly devalued by fluctuations in currency conversion rates. Current estate planning only accounts for currency conversion when the grantor of the estate dies. In nearly any other international transaction – such as business, travel, remittances, etc. – currency conversion rates are given forethought to maximize profits or minimize losses; however, estate planners do not consider these conversion rates in current estate planning practices. Current estate planning practices allow conversion rate fluctuations to significantly devalue any estate with foreign beneficiaries by converting all liquid assets to the beneficiary’s domestic currency around the grantor’s time of death. If the settlor’s domestic currency has a weak conversion rate against the beneficiary’s domestic currency, and the period of weak currency conversion coincides with the grantor’s time of death, then foreign beneficiaries can lose a large portion of the estates value.

Estate planners should change their current practices to account for currency conversion rates in estate plans with foreign grantors. The foreign exchange market (Forex) has basic tools that estate planners can use without a complex understanding of investing or currency exchange. Using Forex to transfer assets to the United States and holding those assets in the United States Dollar (USD) is a simple way to ensure an estate is converted to USD at favorable currency conversion rates for American beneficiaries. Forex also allows beneficiaries to protect illiquid foreign assets such as real estate after the settlor’s death. Estate planners only need to convert currency to prevent losses, they do not need try to make a profit for their clients using Forex to successfully protect the value of the estate, further simplifying currency conversion planning.

Trusts present a financial vehicle for foreign grantors to store currency in USD in the United States and protect these assets from international legal conflicts. Trusts allow grantors to open U.S. bank accounts and store their assets in USD while retaining the ability to retrieve those assets if they are needed during the grantor’s lifetime. Using a properly structured trust will protect trust assets that are stored in the U.S. from conflicts with international law; ensuring that currency conversion planning is not quickly undone at the grantor’s time of death.

https://lawprofessors.typepad.com/trusts_estates_prof/2023/03/currency-conversions-considerations-in-estate-planning-how-to-protect-your-estate-from-losing-its-va.html