Estate Planning with Foreign Assets: What American Expats Must Know

The trap most expats never see coming

An American who retires to Lisbon, marries a Portuguese national, and assumes that when one spouse dies the survivor inherits everything tax-free—the way it works back home—is wrong on a point that can cost the estate hundreds of thousands of dollars. The unlimited marital deduction that lets US spouses pass unlimited assets to each other free of federal estate tax **does not apply when the surviving spouse is not a US citizen**. A green card does not fix it; citizenship is the deciding factor ([Cornell Legal Information Institute](https://www.law.cornell.edu/wex/qualified_domestic_trust)).

That surprise is a symptom of a larger reality: the United States is one of the only countries on earth that taxes the *worldwide* estate of its citizens, no matter where they live or where their property sits. A US citizen who has lived in France for 30 years, holds a French passport, and owns nothing in America still leaves an estate subject to US federal estate tax on everything they own globally—the apartment in Paris, the brokerage account in Geneva, the pension, the car.

For deaths in 2026, the federal estate tax exemption is **$15 million per person** ($30 million for a married couple), a figure made permanent and indexed for inflation by the One Big Beautiful Bill Act signed July 4, 2025 ([Kiplinger](https://www.kiplinger.com/taxes/new-estate-tax-exemption-amount); [IRS](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill)). That ceiling sounds high enough to make this irrelevant for most people. But foreign real estate, a business, appreciated property, and retirement accounts add up faster than expats expect—and the exemption does nothing to solve the cross-border mechanics that follow. The top federal estate tax rate above the exemption is 40%.

Two tax systems, one estate

The core problem is double exposure. Your US estate tax obligation follows your citizenship. At the same time, the country where you live—or where your property is located—will usually impose its own inheritance or estate tax. Spain, France, Japan, and Germany all tax inheritances, sometimes at rates that climb with how distantly the heir is related to you. Your estate can be taxed twice on the same asset.

The primary defense is a treaty. The US has estate and/or gift tax treaties in force with **15 countries**: Australia, Austria, Canada (through the income tax treaty), Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, South Africa, Switzerland, and the United Kingdom ([IRS Estate & Gift Tax Treaties](https://www.irs.gov/businesses/small-businesses-self-employed/estate-gift-tax-treaties-international)). These treaties decide which country taxes what and provide credits to prevent the same asset being taxed in full on both sides.

The catch for many expats: some of the most popular destinations are **not** on that list. There is no US estate or gift tax treaty with Portugal, Spain, Mexico, Costa Rica, Panama, or Thailand. If you live or own property in a non-treaty country, you fall back on the foreign tax credit rules rather than treaty coordination, and the planning is harder. A US estate tax return (Form 706) is generally due **nine months after death**, with a six-month extension available—a tight window when assets and heirs are spread across continents.

The non-citizen spouse problem—and the QDOT fix

Marrying abroad is common, and it reshapes your estate plan. Because the unlimited marital deduction is unavailable when your spouse is not a US citizen, assets passing to that spouse above the exemption can be taxed at the first death rather than deferred to the second.

The lifetime gift rules tighten in parallel. You can give a US-citizen spouse unlimited tax-free gifts during life. For a non-citizen spouse, the tax-free amount is capped—**$194,000 for 2026**, up from $190,000 in 2025 ([IRS](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill); [Morgan Lewis](https://www.morganlewis.com/pubs/2025/10/irs-announces-increased-gift-and-estate-tax-exemption-amounts-for-2026)). (The general annual gift exclusion to anyone else is $19,000 in 2026.)

The standard tool to restore the deferral is a **Qualified Domestic Trust (QDOT)** under Internal Revenue Code §2056A. Assets pass into the trust for the non-citizen spouse, the marital deduction is preserved, and estate tax is deferred until the trustee distributes principal or the surviving spouse dies. The requirements are specific:

• At least one trustee must be a US citizen or a US corporation.
• For QDOTs holding more than **$2 million**, a US bank or trust company generally must serve as trustee (or the estate must post a bond) to ensure the IRS can eventually collect.
• The executor must affirmatively elect QDOT treatment on the Form 706 estate tax return.

Miss the election and the deferral is gone ([Cornell Legal Information Institute](https://www.law.cornell.edu/wex/qualified_domestic_trust)). A surviving non-citizen spouse can also avoid the issue entirely by becoming a US citizen before the estate tax return is due, but that is rarely something to leave to chance.

Why your American will may be unenforceable abroad

Most of the world does not share the US tradition of testamentary freedom—the idea that you can leave your property to whomever you choose. Civil-law countries enforce **forced heirship**: a fixed reserved share of your estate must go to your children (and sometimes your spouse), regardless of what your will says.

France is the textbook example. Children are entitled to a *réserve héréditaire* of the estate: one child is reserved one-half, two children two-thirds, and three or more children three-quarters, leaving only the remainder freely disposable. Disinheriting an adult child in favor of a spouse or charity—routine in the US—can be legally impossible.

For assets inside the European Union, there is an escape hatch. The **EU Succession Regulation (No. 650/2012)**, known as Brussels IV, has applied since August 17, 2015 across 25 member states (Denmark and Ireland opted out; the UK never participated). Its default rule is that the law of your *habitual residence* at death governs your whole estate—but it also lets you elect, in your will, to have the law of your **nationality** apply instead ([EUR-Lex](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32012R0650)). A US citizen living in Spain can expressly choose US law and override Spanish forced heirship.

Two cautions: France's 2021 reform reintroduced a mechanism that can claw back a reserved share for children resident in the EU even when foreign law was elected, and Denmark and Ireland are outside the regulation, so property there follows local rules. Outside the EU, no such election framework exists at all.

There is also a procedural layer. Property in another country typically requires **ancillary probate** there—a separate court process, often demanding a translated and authenticated copy of your US will. Many cross-border families maintain a separate will for each country, drafted in coordination so that one does not accidentally revoke the other. A single US will rarely handles foreign real estate cleanly.

Reporting while you're alive—because the estate inherits the penalties

Estate planning with foreign assets starts long before death, because the annual reporting obligations create liabilities your executor and heirs will have to untangle.

• **FBAR (FinCEN Form 114):** If your foreign financial accounts together exceed **$10,000** at any point during the year, you must report them, filed electronically through the BSA E-Filing system—not with your tax return. The $10,000 threshold is the same whether you live in Ohio or Osaka ([IRS](https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar)).
• **Form 8938 (FATCA):** Filed *with* your Form 1040, this reports specified foreign financial assets above thresholds that are higher for expats. For US citizens living abroad, the threshold is **$200,000** on the last day of the year (or $300,000 at any point) for single filers, and **$400,000 / $600,000** for those married filing jointly ([IRS FATCA summary](https://www.irs.gov/businesses/corporations/summary-of-fatca-reporting-for-us-taxpayers)).

Unreported accounts can carry steep penalties that survive the account holder. An executor who cannot locate or document foreign accounts inherits both the assets and the compliance mess. Keeping these filings current—and keeping a clear record of every foreign account—is part of a functioning estate plan.

When a US citizen dies abroad: what the government will and won't do

Families often assume a US embassy will step in and manage things. The State Department's actual role is narrower than expected, and knowing the limits prevents painful surprises.

When a US citizen dies abroad, a local authority issues a foreign death certificate, and the nearest US embassy or consulate can then prepare a **Consular Report of Death of a U.S. Citizen Abroad (CRODA)**—the official US record of the death that next of kin and legal representatives use to settle estate matters back home ([state.gov](https://travel.state.gov/content/travel/en/international-travel/while-abroad/death-abroad1/consular-report-of-death-of-a-u-s--citizen-abroad.html)). Order several certified copies; banks, insurers, and courts will each demand one.

Consular officers can assist a legal representative or next of kin in identifying and arranging the deceased's personal effects, and where there is no representative in the country, a consular officer may take temporary possession of personal items as a provisional conservator. But the limits are firm: under State Department guidance, consular officers **cannot withdraw money from the deceased's bank, cash checks, or administer the estate**, and they do not act as executor ([state.gov, 7 FAM 290](https://fam.state.gov/fam/07fam/07fam0290.html)). Estate administration is left to the family, a named representative, and local law. That is precisely why naming a local representative and keeping your documents findable matters so much.

Action items

• **Inventory worldwide assets by location.** List every account, property, business interest, and pension, and note the country where each sits—this *situs* determines which laws and taxes apply.
• **Check the treaty status of your country.** If it is not among the 15 with a US estate/gift tax treaty, plan for the foreign tax credit and budget for harder coordination.
• **If you are married to a non-citizen, evaluate a QDOT** now, and confirm your executor knows the election must be made on Form 706.
• **Make a will valid in each jurisdiction.** Inside the EU, decide whether to elect US law under Brussels IV; avoid wills in different countries that revoke one another.
• **Keep FBAR and Form 8938 filings current** and leave a documented account list for whoever will settle your estate.
• **Order multiple certified copies of any death certificate and CRODA**, and tell your family the consulate will not administer the estate.

Next steps

The 2026 exemption levels create a planning window, but the exemption is the easy part—the cross-border mechanics are what derail estates. Assemble a two-person team: a US tax advisor who understands expat reporting, and an estate attorney licensed where your assets are located. A US-only estate plan, however carefully drafted, will not by itself carry across borders. Review the plan whenever you move, marry, buy foreign property, or change citizenship—each of those events can quietly invalidate the assumptions the old plan was built on.