Purchasing real property in Mexico can create death taxes in the United States. As a U.S.citizen, your Mexican assets will be calculated into your total estate for death tax purposes. If your Mexican real property is not included in your U.S. estate plan, you could inadvertently invalidate your entire tax savings scheme. Your tax avoidance planning must be done before you take title to your Mexican property so that it is titled correctly from the beginning. Should you try to change the title later, in order to avoid an unnecessary tax, the Mexican government will deem that to be a sale and you will have to pay transfer taxes which may be to expensive to justify the death tax savings.
For example, we represented a U.S. citizen who held several real properties in Mexico the value of which created a $500,000.00 estate tax. That tax could have been avoided by titling the property differently. Changing the titles, however, would have cost $40,000 in transfer taxes. The cost was simply prohibitive. Therefore, your U.S. estate plan must be coordinated with your Mexican real property purchase, at the time you take title to the Mexican real estate, if you are going avoid its inclusion in your total estate for death tax purposes.
Similarly, U.S. citizens purchasing property or relocating into Mexico must also consider whether they need a Mexican will. Such a determination will depend to a great degree on whether the U.S. citizen wishes to relocate permanently in Mexico or just to come periodically.