5 Critical Mistakes Act 60 Decree Holders Make with Estate Planning

You relocated to Puerto Rico under Act 60 for the tax benefits — 0% on capital gains, 4% on export services income, and no federal tax on Puerto Rico-sourced income. But if your estate plan still looks the same as when you lived in New York, California, or Florida, you could be leaving your heirs exposed to hundreds of thousands of dollars in unnecessary taxes, probate delays, and legal disputes.

As an attorney who works with Act 60 decree holders on both their tax compliance and estate planning, I see the same mistakes over and over. Here are the five most costly — and how to avoid them.

Mistake 1: Not Updating Your Will After Relocating to Puerto Rico

This is the most common error, and potentially the most expensive. Many decree holders assume their existing will from their prior state still "works." Technically, a will executed in another U.S. state may be recognized in Puerto Rico. But that does not mean it will work the way you expect.

Puerto Rico is a civil law jurisdiction. The estate and succession rules are fundamentally different from those in common law states. Under Puerto Rico's Civil Code (Ley 55-2020), a portion of your estate — called the legítima — is reserved by law for your children and, in some cases, your parents. You cannot simply disinherit your kids the way you can in most mainland states.

If your mainland will attempts to leave everything to a spouse or a trust without accounting for the legítima, a Puerto Rico court can invalidate those provisions. The result: a contested estate, legal fees, and an outcome nobody intended.

What to do: Have a Puerto Rico-licensed attorney review your existing will and, in most cases, draft a new one that complies with Puerto Rico law. If you own assets in multiple jurisdictions, consider a dual-will architecture — one will for your Puerto Rico assets and one for assets elsewhere.

Mistake 2: Ignoring Puerto Rico's Forced Heirship Rules

Forced heirship catches mainland transplants off guard. Under Articles 1035-1042 of the Puerto Rico Civil Code, your legitimate descendants (children, grandchildren) are entitled to two-thirds of your estate. Of that two-thirds, one-half is divided equally among them (the legítima estricta) and the other half can be allocated among them at your discretion (the mejora).

Only the remaining one-third — the libre disposición — can go to anyone you choose, including a spouse, a friend, or a charitable organization.

This means if you have three children and want to leave everything to your spouse, Puerto Rico law will not allow it. Your children are entitled to their share, regardless of what your will says.

What to do: Work with an attorney who understands both civil law forced heirship and the trust structures available under Puerto Rico Law 219-2012. An irrevocable trust, properly structured, can provide significant planning flexibility while respecting forced heirship requirements. For example, you can fund a trust during your lifetime that provides for your spouse while preserving the children's statutory rights upon your death.

Mistake 3: Using Only a Mainland Trust Without Puerto Rico Counsel

Many Act 60 decree holders arrive with a revocable living trust created by a mainland estate planning attorney. These trusts are designed to avoid probate in common law states and provide flexibility in distributing assets.

The problem: these trusts were not designed with Puerto Rico's legal framework in mind. Key issues include:

• Trust recognition. Puerto Rico did not have a comprehensive trust statute until Law 219-2012. Trusts created under mainland law may not be recognized the same way in Puerto Rico courts.

• Situs and governing law. If you have moved your domicile to Puerto Rico, the governing law for your estate may be Puerto Rico law, even if your trust says "governed by Delaware law." This creates conflicts that litigators love and heirs hate.

• Tax treatment. A revocable trust that was tax-neutral in your prior state may have different implications under Puerto Rico's tax code, particularly regarding income earned within the trust after your change of domicile.

• Forced heirship interaction. A mainland trust does not override Puerto Rico's forced heirship rules. If the trust attempts to distribute assets in a way that violates the legítima, Puerto Rico heirs can challenge it.

What to do: Have your existing trust reviewed by a Puerto Rico attorney who understands Law 219-2012. In many cases, the best approach is to create a new Puerto Rico trust that works alongside your existing structures, rather than relying solely on a mainland trust that may not hold up under Puerto Rico law.

Mistake 4: Not Coordinating Federal and Puerto Rico Estate Tax Exposure

Here is where the tax planning gets complicated — and where the most money is at stake.

Act 60 decree holders often have a split tax profile: some income is exempt from federal tax (Puerto Rico-sourced), while other income remains federally taxable. This split profile creates estate planning challenges that most mainland attorneys are not equipped to handle.

Key considerations:

• Federal estate tax still applies. U.S. citizens living in Puerto Rico are subject to federal estate tax on their worldwide assets. The current exemption ($13.61 million in 2026) is historically high, but it is scheduled to sunset to roughly half that amount in 2026 under current law. If your estate exceeds the exemption, your heirs could face a 40% federal estate tax rate.

• Puerto Rico estate tax is separate. Puerto Rico imposes its own estate tax with different rates and exemptions. Assets located in Puerto Rico are subject to Puerto Rico estate tax regardless of where you are domiciled.

• Double taxation risk. Without proper planning, some assets could be subject to both federal and Puerto Rico estate tax. Credits exist to mitigate this, but they require careful coordination.

• Act 60 income is not exempt from estate tax. The income tax exemptions under Act 60 do not extend to estate and gift taxes. An asset that generated tax-free income during your lifetime is still part of your taxable estate at death.

What to do: Engage an attorney and tax advisor who can model your estate tax exposure under both federal and Puerto Rico law. Strategies like lifetime gifting, irrevocable life insurance trusts (ILITs), and charitable planning can significantly reduce your combined tax burden. The key is doing this planning while the federal exemption is still high.

Mistake 5: Failing to Maintain Consistent Residency Documentation

This mistake bridges tax compliance and estate planning. Act 60 requires you to be present in Puerto Rico for at least 183 days per year. If the IRS successfully challenges your residency — arguing you never truly became a bona fide resident of Puerto Rico — the consequences cascade far beyond income taxes.

If your residency is challenged posthumously:

• Your estate could be treated as domiciled in your prior state, triggering state estate tax (New York, California, Connecticut, and others have their own estate taxes).

• Your Puerto Rico trust structures may be recharacterized under mainland law.

• The income tax benefits you claimed under Act 60 could be clawed back, creating a massive liability for your estate.

What to do: Maintain meticulous records of your presence in Puerto Rico: flight records, credit card statements, doctor visits, gym memberships, voter registration, church attendance, community involvement. Keep these records organized and accessible. Instruct your estate planning attorney on where these records are stored, because your executor may need them to defend your residency status after you are gone.

The Bottom Line

Act 60 gets you to Puerto Rico. A properly structured estate plan keeps your wealth there — and ensures it passes to your heirs the way you intend. The tax savings from Act 60 can be substantial, but they mean little if your estate plan fails to account for Puerto Rico's civil law framework, forced heirship rules, and the interaction between federal and local tax regimes.

If you relocated under Act 60 and have not had your estate plan reviewed by a Puerto Rico attorney, you are likely exposed to one or more of these mistakes. The cost of fixing them now is a fraction of what your heirs will pay later.

Ready to review your estate plan? Schedule a free strategy call with Riefkohl Law to discuss how your Act 60 decree interacts with your estate planning needs. We work with decree holders across Puerto Rico to build estate plans that actually work under local law.

Hans Riefkohl is an attorney at Riefkohl Law in San Juan, Puerto Rico, focusing on trusts, estate planning, and Act 60 advisory services.