Shape up your estate plan before you ship out.

When you're negotiating a foreign assignment with your company, your estate plan is probably the last thing on your mind. But it's also something you shoulddiscuss with your employer if you're planning on going overseas, especially on a long-term assignment. Acquiring assets in a foreign country vastly complicates the estate-planning process, and estate-tax laws vary considerably from country to country. That's why you should consider estate planning part of your overall expatriate benefits package. With proper planning on your end, you can protect your family from double taxes on your estate, which could happen if you die while out of the country.

If you work or are planning to work abroad, you face potential estate and inheritance taxes on compensation and benefits. The first thing you need to do is determine what type of tax you're likely to incur. An estate tax is a tax upon the transfer of wealth at death and is paid by the deceased's estate. In most cases, the tax applies to the individual's worldwide assets. An inheritance tax, on the other hand, is paid by an estate beneficiary and may be deducted from the receipt of property inherited.

In the United States, the estate-tax rates range from 18 percent to a maximum of 50 percent on estates in excess of $2.5 million. Many countries impose no death taxes whatsoever. However, in these instances the country often imposes capital gains tax at death on an asset's appreciated value, measured from the purchase date to the date of death.

If you decide to go overseas, you'll probably keep only limited assets in your host country. Very few expatriate financial executives own foreign real estate, although most have bank accounts denominated in the local currency. But even if you're only on a temporary assignment and the majority of your assets is in the United States, you should investigate whether the host country has a treaty with the United States to prevent double taxation.

For instance, some treaties provide for an exemption period for a specified number of years after an executive relocates in another country. During this period, all assets not situated in that country are exempt from death taxes. That includes stock, stock options, securities and other intangibles the executive might have, as well as assets located in the United States or in a third country. Once the exemption period expires, the country may provide further tax relief through offsetting tax credits. Therefore, even if both the foreign country and the United States tax your worldwide assets, you'd have an offsetting credit for the taxes paid on assets located in the other country. Many treaties also provide for a marital deduction similar to the United States'.

Some treaties are more limited in scope and don't offer an exemption period. These countries may impose death taxes on your worldwide assets, so even if they do offer a tax credit on assets outside their borders, it may not be enough to fully offset the impact of double taxation.

How do you estimate what your tax liabilities are likely to be? One good guideline is the status the host country assigns you. For instance, many countries use a "domicile" test. An individual who wants to be considered domiciled there must show that he or she intends to remain permanently. Most governments determine domicile based on the facts and circumstances of the individual case, which can create a great deal of uncertainty.

Other countries use a residency test, which means your worldwide assets would be taxed at death, based on your residence category under the country's income-tax laws. In these countries, an individual becomes a resident simply by moving there. Therefore, make sure you're clearly domiciled in one country, especiallyif the country in which you're currently working will automatically consider you a resident.

The nature of your assets and where they are located also affects estate taxation and planning. Property that is physically located in a country is always taxed there. This is called "situs" property. And don't forget that if you buy real estate overseas, you may be taxed on that, too. Your compensation and benefits package could be vulnerable as well. Many countries treat stock as property subject to their tax laws if it's issued by a corporation located within its borders.

Stock transfers also raise numerous administration and estate-settlement problems. Generally, an estate representative, such as an executor or administrator, is the only person empowered to transfer stock after you die. Accordingly, while your family might need to liquidate stock to pay estate-settlement costs and to use as income, you should know that it's often the most difficult asset to transfer if you die in a foreign country.

Here are some other critical issues to consider before you accept any foreign assignment.

* Review wills and other testamentary documents. When you consider naming an executor to administer the estate, make sure it's someone who can administer the estate in both the United States and the foreign country, if necessary.

* Consider using trusts to shelter assets. You can also use life insurance to help defray the cost of estate administration. An irrevocable life insurance trust can be very useful, since it eliminates probate in the United States and the foreign country, while escaping taxation.

* Don't forget stock bonuses, options and incentives. Make sure that your estate will be able to easily dispose of any stock your employer gives you as part of your compensation and that it can readily exercise the stock options.

Clearly, foreign assignments complicate the estate-planning process considerably, and until recently, employers haven't paid much attention to this area. But as companies expand their global reach and send more senior-level financial executives abroad, they're beginning to include the potential of this "hidden tax" in their tax-equalization policy. Therefore, they have an obligation to help defray any extra estate-administration expenses that might result from an employee's overseas status. Employers should accept the responsibility to set up programs for expatriates that will help them avoid estate-planning pitfalls, but you can take matters into your own hands by checking into your host country's tax policies before you leave the United States.

IF YOU'RE NOT FROM THE UNITED STATES

Do you work here in the United States but hail from another nation? If you aren't a U.S. citizen, here are some estate-planning considerations to keep in mind. First, if you die here, the United States imposes an estate tax on your worldwide assets. However, if your spouse is a U.S. citizen, you can transfer an unlimited amount of property to him or her without paying estate taxes, because of the unlimited marital deduction available to all U.S. citizens.

The U.S. government also imposes a gift tax on all property transfers you make during your lifetime, at the same tax rates as in the estate area. As a non-citizen, you're generally entitled to an annual gift-tax exclusion of $10,000. If you're married, your spouse is eligible for the same amount of money, raising the annual gift-tax exclusion to $20,000.

In some instances, you might be able to exempt more than $20,000. In 1988, Congress prohibited the unlimited marital deduction in cases where a citizen transfers property to a non-citizen spouse, so it offered some relief through the gift-tax exclusion. If the recipient of the gift is your spouse but isn't a U.S. citizen, you can exclude up to $100,000 from gift taxes. (One note on the UMD prohibition: If your spouse isn't a citizen, he or she can't use the unlimited marital deduction even if you both hold joint title to a property, so bear that in mind if you decide to buy property in the United States.)

Also, as an individual, you are entitled to a tax credit equivalent to $600,000, so you and your spouse could shelter up to $1.2 million from federal estate tax. You can use this exemption both for lifetime gifts and for transfers that gointo effect at your death. You can still defer the tax on assets above $600,000, but only if the excess amount is held in a qualified domestic trust. Consider having your spouse or an insurance trust own your life insurance policy if your benefits are large. Under U.S. estate-tax laws, the tax applies to the policy-owner, not the insured. So if you die while your spouse owns the policy, no estate tax would be due on the insurance benefits.

If you're planning to stay in the United States for an extended period of time, make sure your spouse has assets in his or her name equivalent to the $600,000 credit. That way you'll cover all the bases where estate-tax credits are concerned.

GIVING CREDIT WHERE IT'S DUE

The United States has bilateral treaties in force with 16 foreign countries on estates, inheritances, gifts and generation-skipping transfers (GST). These treaties fall into two categories:

* Broad Treaties -- These were signed after 1979 and generally permit a window period after the expatriate dies. During the window, assets located in the United States are protected from taxation in the host country. The host country can impose death taxes only on immovable assets (usually real estate) located within its borders. Once the window period ends, the host country can tax thedeceased's worldwide assets, but it will provide relief in the form of a foreign tax credit.

Here are the seven countries with which the United States has broad treaties and the areas the treaties cover:

Austria                         Estate taxes, gift taxes and GST
Denmark                         Estate taxes, gift taxes and GST
France                          Estate taxes, gift taxes and GST
Germany                         Estate taxes, gift taxes and GST
The Netherlands                 Estate taxes only
Sweden                          Estate taxes, gift taxes and GST
United Kingdom                  Estate taxes, gift taxes and GST

* Narrow Treaties -- These treaties were signed before 1972. They are more limited in scope and don't provide for a window period. In general, they permit the host country to impose death taxes on the worldwide assets of a U.S. citizen in accordance with its internal laws. These countries usually levy their death tax on worldwide assets when the expatriate moves into the country. A foreign tax credit is required. The following nine countries have narrow treaties with the United States:

Australia                       Gift and estate taxes
Finland                         Estate taxes only
Greece                          Estate taxes only
Ireland                         Estate taxes only
Italy                           Estate taxes only
Japan                           Gift and estate taxes
Norway                          Estate taxes only
South Africa                    Estate taxes only
Switzerland                     Estate taxes only

Mr. Jenkins is senior vice president and general counsel for The Lyons Co., Waltham, Mass., which specializes in executive compensation and employee benefits programs.