My recent article on the security concerns created by unexplained affluence identifies inheritance as one of the ways clearance holders sometimes come into large amounts of money.
Because death is unfortunately a fact of life, clearance holders receiving a bequest under a will or trust is a fairly common issue. But the term “inheritance” doesn’t always portend a significant amount of cash. Sometimes it means real property like a home or a plot of land – including assets overseas. Sometimes it means a business or a stake in a business. And sometimes it means nothing more than a pile of dusty junk that was a decedent’s gold.
Different types of inheritances pose different potential problems for security clearance holders, so before you accept or disclaim anything from the estate of a passed loved one, here are a few things to consider.
Certain Business Interests Can Create Legal Conflicts
Under the National Adjudicative Guidelines for security clearances, clearance holders’ “outside activities” can be disqualifying if such activity includes employment or other involvement with a foreign business. Similarly, many employment contracts – like the kinds used by some government contractors – contain non-competition clauses or other provisions designed to prevent the poaching of intellectual property. Be very careful and consider consulting with legal counsel before accepting any ownership stake, seat on a board of directors, or other position as part of an inheritance when you are already employed elsewhere. Moreover, government employees may have additional ethics considerations that require disclosure to and approval from an agency ethics office or the Office of Government Ethics.
Not All Overseas Financial Assets Pose a Security Risk, But Many Do
Inheriting a modest vacation home in the Caribbean, Canada, Australia, or Western Europe isn’t necessarily likely to be viewed as a security risk – even though, believe it or not, I’ve seen agencies attempt to make that case. But property, a bank account, or investments in less friendly countries (or even friendly countries that have an active espionage program in the United States) can be deemed a disqualifying security risk for clearance holders. The best solution here is a proactive one: engage a local real estate agent to sell property and repatriate all funds in foreign accounts to U.S. accounts. If you really have an attachment to the property, consider asking your agency’s security office for guidance in the form of an advisory opinion. Not all agencies will provide such an opinion, but at least making the request in writing demonstrates your attempt at compliance with policy. That will be well-received by reviewing officials in the event that the inheritance is later deemed a security risk.
Tax Compliance is Critical
In most situations, the recipient of an inheritance owes no income tax on that inheritance under federal law. There are, however, some exceptions. For example, money made off an inherited asset (e.g. interest or dividends) is taxable, and a handful of states have unusual tax law quirks on the books that apply to inheritances.
The best thing any clearance holder receiving an inheritance can do – indeed, the first thing she or he should do – is to retain a Certified Public Accountant (CPA) with experience in trusts and estates. Remember, it’s not just the payment of taxes due that can impact security clearance holders. It’s also a failure to file tax returns when required.
Self-Reporting Obligations Exist Under SEAD-3
Finally, keep in mind that Security Executive Agent Directive (SEAD)-3 identifies situations wherein security clearance holders must self-report certain categories of potentially disqualifying information, including foreign financial interests and unexplained affluence. Any clearance holder obtaining an inheritance of value or one involving assets held overseas should consult the directive to determine their reporting responsibilities.
This article is intended as general information only and should not be construed as legal advice. Consult an attorney regarding your specific situation.