Estate Planning with Foreign Assets

Introduction

Estate planning for US citizens abroad involves navigating multiple legal systems. Your US will may not control foreign assets. Foreign countries may have forced heirship rules limiting who can inherit. Tax implications span both US estate tax and foreign inheritance taxes.

This complexity requires professional guidance, but understanding the issues helps you ask the right questions.

Key Challenges

Multiple Jurisdictions

• Real estate (usually governed by location)
• Bank accounts (varies)
• Personal property (often by domicile)
• Business interests (varies)

Conflicting Rules

**US:** Generally testamentary freedom (you choose who inherits)

**Civil Law Countries (France, Spain, Portugal):** Forced heirship rules require certain percentages go to specific heirs

**Conflict:** Your wishes may not be honored in all jurisdictions

Forced Heirship

How It Works

Many countries require portions of estate go to "protected heirs":

• 1 child: 50% reserved
• 2 children: 66% reserved
• 3+ children: 75% reserved

• Children entitled to 66% (varies by region)
• Surviving spouse has usufruct rights

• 50% to spouse and children
• Cannot disinherit

• Children have compulsory portion claim
• Can be reduced but not eliminated

Planning Around It

• Some jurisdictions allow choice of law for movables
• EU succession regulation (Brussels IV) allows choice
• Structure assets to minimize impact
• Life insurance (often excluded from estate)
• Trusts (but complex in civil law countries)

Will Considerations

Single Will vs. Multiple Wills

• Simpler to maintain
• May not be recognized everywhere
• Format requirements differ

• Tailored to local requirements
• Must coordinate carefully
• Risk of unintended revocations

Execution Requirements

• Written document
• Signed by testator
• Witnessed by 2 (usually)
• Notarization varies

• Often require notarized will
• Holographic wills (handwritten) recognized in some
• Specific formalities required

International Will

• Recognized by signatory countries
• Specific execution requirements
• Not universally adopted

US Estate Tax

Basic Rules

**2025 Exemption:** $13.99 million (set to decrease in 2026)

• US citizens worldwide on worldwide assets
• Regardless of residence

Foreign Assets

• Foreign real estate included in taxable estate
• Foreign bank accounts included
• Foreign businesses included
• Step-up in basis still applies

Foreign Death Taxes

• UK: 40% over £325,000 threshold
• France: Varies by relationship (up to 60%)
• Germany: Varies by relationship and amount
• Spain: Varies by region

• US allows credit for foreign death taxes paid
• Prevents complete double taxation
• Form 706 required

Trust Considerations

US Trusts Abroad

• Not recognized in civil law countries
• May be treated as transparent (ignored)
• Could create adverse tax consequences
• Asset protection may not work

• Revocable living trust: Often problematic abroad
• Irrevocable trust: Complex international planning
• Testamentary trust: Created by will, varies by country

Foreign Trusts

• Extensive US reporting (Form 3520, 3520-A)
• Punitive taxation possible
• Professional guidance essential

Power of Attorney

Cross-Border Issues

• US power of attorney may not be recognized
• Foreign POA may be needed
• Healthcare directive may need local version
• Banking POA often specific

Recommendations

• Execute POA in each country with assets
• Use local attorneys
• Consider durability provisions
• Register where required

Practical Steps

With Professional Guidance

1. **Inventory all assets by location**

1. **Understand local rules**

1. **Create coordinated plan**

1. **Maintain documents**

Key Takeaways

• Foreign real estate typically governed by local law regardless of your will
• Civil law countries have forced heirship rules you cannot override by will
• US estate tax applies to worldwide assets of US citizens
• US trusts may not be recognized or may create problems abroad
• Multiple wills may be needed but must be carefully coordinated

Next Steps

1. List all assets and their locations
2. Research local inheritance rules for each country
3. Engage estate planning attorney with international experience
4. Consider engaging local counsel in countries with significant assets
5. Coordinate US and foreign planning carefully