Estate Planning with Foreign Assets: What American Expats Must Know

# Estate Planning with Foreign Assets: What American Expats Must Know

When a US citizen dies while living in Lisbon, owning a rental apartment in Porto, a Swiss brokerage account, and a Roth IRA back in Ohio, the IRS treats the entire estate — every asset, in every country — as if the person had died in Cleveland. US citizenship, not residence, is what triggers federal estate tax. That single fact catches thousands of expats off guard every year, because most other countries tax estates based on where a person lived or was domiciled, not their passport.

For most American expats, the federal estate tax itself won't be the problem — the exemption is large. The real risk is a set of overlapping, country-specific rules that a stateside will was never built to handle: a spouse who isn't a US citizen, a country with forced-heirship inheritance laws, a foreign gift or inheritance that goes unreported to the IRS, or a home state that still considers you a legal resident years after you've left. Each of these can turn a routine estate into a multi-year, cross-border legal problem for the people left behind.

US Citizens Owe Estate Tax on Worldwide Assets, Not Just US Ones

Federal estate tax applies to a US citizen's entire estate regardless of where the assets are located or where the person was living at death. A foreign apartment, a foreign pension, or a non-US brokerage account is included in the taxable estate exactly like a house in Ohio.

The exemption, however, is high. Under changes made by the One, Big, Beautiful Bill Act, decedents who die in 2026 have a basic exclusion amount of $15,000,000, up from $13,990,000 in 2025, with the amount now permanent and indexed for inflation going forward (IRS, Revenue Procedure 2025-32, IR-2025-103, October 9, 2025). A married couple can shield a combined $30,000,000 through portability. That covers the overwhelming majority of expats. It does not cover business owners, long-term residents of countries with property appreciation booms, or anyone with US life insurance payable to their estate, all of which count toward the total.

Filing is triggered separately from owing tax: an estate must file Form 706 if the gross estate plus prior taxable gifts exceeds the exclusion amount for the year of death, even if the final tax bill is zero because of deductions or portability elections.

Only 17 Countries Have a US Estate Tax Treaty

Income tax treaties get most of the attention, but estate tax treaties are a separate, much shorter list. The United States has estate and/or gift tax treaties with 17 countries: Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, Norway, South Africa, Sweden, Switzerland, and the United Kingdom (IRS, "Estate & Gift Tax Treaties (International)").

Popular expat destinations such as Mexico, Portugal, Spain, Thailand, Panama, Costa Rica, and the Philippines are not on that list. Without a treaty, a US citizen who owns real estate or other situs assets in one of these countries can face both the local inheritance or transfer tax and, above the $15 million exemption, US estate tax on the same property, with only a limited foreign tax credit under IRC Section 2014 to offset the double hit — and that credit only applies to foreign taxes paid on assets also taxed by the US, not to every foreign levy. Where a treaty exists, it typically narrows what counts as "situated" in each country and provides a clearer credit mechanism, reducing the double-taxation risk.

The Marital Deduction Doesn't Automatically Apply to a Non-Citizen Spouse

This is the single most consequential rule for expats married to a non-US citizen, which describes a large share of the American expat population. The unlimited marital deduction — the provision that lets a US citizen leave unlimited assets to a spouse tax-free — does not apply if the surviving spouse is not a US citizen, even if that spouse is a green card holder.

Two mechanisms exist to work around this:

• **Lifetime gifts**: The annual exclusion for gifts to a non-citizen spouse is $194,000 for 2026, up $4,000 from 2025 (IRS, Revenue Procedure 2025-32). Gifts above that amount count against the donor's lifetime $15 million exemption and require filing Form 709.
• **A Qualified Domestic Trust (QDOT)**: Assets left to a non-citizen spouse through a QDOT can still qualify for the marital deduction, deferring estate tax until the surviving spouse dies or withdraws principal. A QDOT requires at least one US trustee (a citizen or domestic corporation) with the right to withhold estate tax on distributions, and the election must be made affirmatively on the estate tax return — it is not automatic (IRS, Instructions for Form 706-QDT). Without one, a non-citizen spouse inheriting outright is taxed like any other heir above the exemption, with no marital deduction cushion.

Forced Heirship Can Override an American Will

Civil-law countries across Europe, Latin America, and parts of Asia use forced heirship: a fixed share of the estate — often assets owned there — legally belongs to children or a spouse, regardless of what the will says. A California-style will leaving everything to one child, or to a charity, may simply not be enforceable against locally situated property.

Since 2015, the EU Succession Regulation (Regulation (EU) No 650/2012, known as "Brussels IV," in force from August 17, 2015) has given a partial fix. It lets a person explicitly elect the law of their nationality — US state law, in most expats' cases — to govern succession of their estate, overriding the default rule that the law of habitual residence applies. The election has to be made expressly in the will or a codicil; a single clear sentence stating the choice is the standard practice.

There's an important limit: since a 2021 amendment, France allows French-resident children to reclaim their statutory reserve from French-situated assets even when the parent elected US law under Brussels IV. Expats with property or heirs in France should not assume a Brussels IV election fully insulates French real estate from forced heirship. Anyone owning real property in a civil-law country should have a local attorney confirm how that country treats a foreign will before assuming a US will controls.

Reporting Foreign Assets and Foreign Inheritances to the IRS

Owning or inheriting assets abroad triggers reporting obligations that are separate from — and in addition to — any estate tax owed:

• **FBAR (FinCEN Form 114)**: Required if the aggregate value of foreign financial accounts exceeded $10,000 at any point during the year. This includes inherited foreign bank accounts, not just accounts the person opened personally.
• **FATCA (Form 8938)**: For expats, the reporting threshold is $200,000 in specified foreign assets on the last day of the year (or $300,000 at any point during the year) for single filers, and $400,000 / $600,000 for married couples filing jointly — well above the $50,000 threshold that applies to people living in the US (IRS, "Summary of FATCA Reporting for US Taxpayers"). Failing to file carries a penalty starting at $10,000.
• **Form 3520**: A US person who receives a gift or bequest from a foreign individual (or foreign estate) exceeding $100,000 in aggregate during the year must report it, itemizing any single gift over $5,000. The threshold for gifts from a foreign corporation or partnership is much lower — $20,573 for 2026, adjusted annually for inflation (IRS, Instructions for Form 3520, 12/2025). Form 3520 is informational — inheritances from a foreign person generally aren't taxed as income — but the penalty for not filing can reach 25% of the amount received.

Moving Abroad Doesn't Automatically End State Estate Tax Exposure

Twelve states plus the District of Columbia impose their own estate or inheritance tax, several with exemptions far below the federal $15 million threshold — Oregon's exemption is $1 million and Massachusetts's is $2 million, for example. Living abroad does not automatically sever legal domicile in the state a person left. States look at factors like where a person is registered to vote, where they hold a driver's license, where they own property, and whether they've taken affirmative steps to establish domicile elsewhere. An expat who still votes in New Jersey and keeps a New Jersey driver's license, despite living in Malaysia for a decade, can find their estate subject to New Jersey estate tax on top of federal tax.

What the State Department Can and Cannot Do

When a US citizen dies abroad, a US consular officer will notify the next of kin or legal representative and can help with practical matters: information on local burial requirements, arranging shipment of remains or personal effects (at the estate's or family's expense), and preparing a Consular Report of the Death of an American Abroad, which US courts accept as evidence of death for settling the estate. If the deceased has no legal representative or next of kin in the country, the consular officer has statutory authority to take temporary custody of personal effects and inventory them (US Department of State, "Death," travel.state.gov).

What consular officers do not do is provide legal advice, draft or interpret a will, or represent the estate in a foreign probate proceeding. The State Department consistently directs families to retain a local attorney for anything involving inheritance, forced heirship, or foreign probate — the consulate's role is administrative and consular, not legal representation.

Practical Takeaways

• **Confirm which country's law governs your will.** If you own property in a civil-law country, ask a local attorney whether you need an explicit choice-of-law clause (e.g., a Brussels IV election) or a second, country-specific will.
• **Check whether your destination country has a US estate tax treaty.** If it doesn't, ask a cross-border estate attorney how IRC Section 2014's foreign tax credit would apply to your specific assets before assuming you're protected from double taxation.
• **If your spouse isn't a US citizen, don't rely on the marital deduction.** Model out a QDOT with an estate attorney, or plan lifetime gifts within the $194,000 (2026) annual exclusion.
• **Track your FBAR, FATCA, and Form 3520 obligations every year**, not just at death — a large inherited foreign account or bequest can trigger all three at once.
• **Revisit your state domicile.** If you still hold a driver's license, voter registration, or property in a high-exemption-state-turned-low-exemption-state, get advice on whether you've legally established a new domicile.
• **Keep your family briefed on the Consular Report of Death process** — make sure they know to contact the nearest US embassy or consulate immediately, and that they understand the consulate will not handle probate.

Next Steps

Foreign assets don't just complicate an estate — they multiply the number of legal systems that can claim jurisdiction over it. Start by listing every asset by country, then work backward: does this country have an estate tax treaty with the US? Does it apply forced heirship? Does my will explicitly address it? For most expats, the fix isn't a single document but three coordinated pieces — a US will or trust, a local will or choice-of-law clause for foreign real property, and a beneficiary-designation review for retirement accounts and life insurance — built with input from both a US estate attorney and a local one in the country where the assets sit.