Estate Taxes for U.S. Citizens Living Abroad
- How Do U.S. Estate Taxes Work for Expats?
- Will My Estate Be Subject to Federal Estate Tax?
- How Do State Estate Taxes Affect Expats?
- What's the Difference Between Estate Tax and Inheritance Tax?
- Do Estate Tax Treaties Help Me?
- When Do I Need to File Form 706?
- What If I'm Married to a Non-U.S. Citizen?
- How Can I Reduce My Estate Tax?
- What Other Reporting Do My Heirs Need to Know?
- Three Estate Planning Scenarios
- Get Expert Help With Estate Planning
- Related Resources
According to the IRS, only estates valued above $13.99 million face federal estate taxes this year. That means more than 99.9% of Americans won’t owe federal estate tax when they pass away. However, if you live abroad and own foreign assets, those assets count toward this threshold, making estate planning essential for protecting your heirs.
Living overseas adds complexity to estate planning. Your worldwide assets – foreign real estate, foreign bank accounts, ownership in foreign companies – all factor into your U.S. estate tax calculation. Additionally, if you’re married to a non-U.S. citizen or maintain ties to states with their own estate taxes, the rules become even more nuanced.
Most expats discover their estates won’t face federal taxes, but proper planning ensures your heirs receive maximum value and avoid complications during an already difficult time.
How Do U.S. Estate Taxes Work for Expats?
U.S. citizens are subject to estate tax on their worldwide assets, regardless of where they reside or where their property is located. This citizenship-based system means your Spanish villa, Thai investment accounts, and German business interests all count when calculating your estate value.
The federal exemption for estates is $13.99 million per person ($27.98 million for married couples with proper planning). Your estate pays tax only on amounts exceeding this threshold, at rates up to 40%.
How it calculates: Robert lives in Portugal with worldwide assets totaling $16 million when he passes away:
- Total estate value: $16,000,000
- Federal exemption: -$13,990,000
- Taxable amount: $2,010,000
- Estate tax at 40%: ~$804,000
His heirs receive approximately $15.2 million after the federal estate tax is paid.
What Assets Count in My Estate?
Every asset you own anywhere in the world counts:
- Foreign real property: Homes, vacation properties, rental properties in any country
- Foreign financial accounts: Bank accounts, investment accounts, retirement accounts abroad
- Foreign business interests: Ownership stakes in foreign corporations, partnerships, LLCs
- Foreign retirement plans: Many foreign pensions and retirement accounts
- Personal property abroad: Vehicles, artwork, jewelry, furnishings
- U.S.-based assets: Real estate, investment accounts, and retirement accounts in the United States
Your executor calculates the total fair market value of all these assets on your date of death to determine if your estate exceeds the exemption threshold.
Estate Planning Gets More Complex When You Live Abroad.
Will My Estate Be Subject to Federal Estate Tax?
Most expat estates won’t owe federal tax. You need worldwide assets exceeding $13.99 million before any federal estate tax applies.
However, you should consider estate planning if:
- Your worldwide assets approach the $13.99 million threshold
- You own property or maintain residency in states with estate taxes (much lower thresholds)
- You’re married to a non-U.S. citizen (special rules apply)
- You own foreign corporations or have complex business structures
- You want to minimize state taxes or ensure a smooth asset transfer to heirs
Jennifer lives in Singapore with assets totaling $8.5 million. While well under the federal threshold, her estate plan ensures:
- Proper titling of foreign properties
- Beneficiary designations on all accounts
- Powers of attorney are valid in both countries
- Clear instructions for executors handling international assets
Even estates under the threshold benefit from planning to avoid probate complications and ensure heirs can access assets efficiently.
How Do State Estate Taxes Affect Expats?
Twelve states plus the District of Columbia impose estate taxes with exemptions far lower than the federal $13.99 million. These state taxes can affect you even if you live abroad, depending on:
- Where you maintain legal residency or domicile
- Where you own real estate
- Where you’re registered to vote
States With Estate Taxes
| State | Exemption | Top Rate |
|---|---|---|
| Oregon | $1,000,000 | 16% |
| Rhode Island | $1,802,431 | 16% |
| Massachusetts | $2,000,000 | 16% |
| Minnesota | $3,000,000 | 16% |
| Washington | $3,000,000 | 35% |
| Illinois | $4,000,000 | 16% |
| District of Columbia | $4,873,200 | 16% |
| Hawaii | $5,490,000 | 20% |
| Maryland | $5,000,000 | 16% |
| Vermont | $5,000,000 | 16% |
| Maine | $7,000,000 | 12% |
| New York | $7,160,000 | 16% |
| Connecticut | $13,990,000 | 12% |
Maryland is the only state imposing both an estate tax and a separate inheritance tax.
How State Residency Works
States use various methods to determine residency, including voter registration, driver’s license location, property ownership, homestead exemptions, time spent in the state, and intent to return.
David lives in France, but never formally ended his Massachusetts residency. He votes by absentee ballot and maintains his Massachusetts driver’s license. Massachusetts considers him a resident for estate tax purposes. His $3.5 million estate faces Massachusetts estate tax even though he hasn’t lived there in 15 years.
What’s the Difference Between Estate Tax and Inheritance Tax?
Estate tax and inheritance tax are separate taxes that apply at different times to different people. Understanding this distinction helps you plan appropriately.
Estate tax is assessed on your total estate before assets reach your heirs. Your estate pays this tax. The federal government and 12 states, plus DC, impose estate taxes.
Inheritance tax is paid by people receiving assets from your estate, not by your estate itself. Only five states levy inheritance taxes: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The federal government does not impose an inheritance tax.
| Factor | Estate Tax | Inheritance Tax |
|---|---|---|
| Who pays | Your estate before distribution | Individual heirs after receiving |
| Federal tax | Yes (over $13.99M) | No |
| State taxes | 12 states + DC | 5 states |
| When paid | Before heirs receive assets | After heirs receive their share |
| Form | 706 if required | State forms only |
For detailed information about reporting foreign inheritances you receive, see our Foreign Inheritance Tax Guide.
Do Estate Tax Treaties Help Me?
The U.S. has estate tax treaties with 15 countries, plus Canada, to prevent double taxation when both the U.S. and your country of residence try to tax the same assets.
Treaty countries: Australia, Austria, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, South Africa, Switzerland, the United Kingdom, and Canada.
How Treaties Prevent Double Taxation
Treaties work in two ways:
- Situs-based treaties assign taxing rights based on the location of assets. Real estate is taxed where it sits; business property is taxed where the business operates.
- Domicile-based treaties assign you a single fiscal domicile. The domicile country gets primary taxing rights; the other country provides credits or exemptions.
Michael is a U.S. citizen who has been retired in Germany for 25 years. He owns a Munich apartment (€ 900,000), German investments (€ 2,000,000), and a California rental property ($ 500,000). Under the U.S.-Germany estate tax treaty, Germany assigns him fiscal domicile. Germany taxes its worldwide estate first. The U.S. provides foreign tax credits for German taxes paid, potentially eliminating the U.S. estate tax.
Without the treaty, both countries could tax his worldwide estate at full rates, potentially creating a tax burden exceeding 60% of estate value.
When Do I Need to File Form 706?
Form 706 (U.S. Estate Tax Return) is required when the gross estate plus adjusted taxable gifts exceed $13.99 million. Your executor files this form, not you personally.
The return is due nine months after death, with a possible six-month extension by filing Form 4768.
Filing for Portability
Even estates owing no tax should consider filing Form 706 to preserve the unused exemption for a surviving spouse through portability.
Sarah died with a $9 million estate, which passed to her husband, James (both U.S. citizens). Her executor filed Form 706 to elect portability. James can add Sarah’s unused $4.99 million exemption to his own $13.99 million, resulting in a total exemption of $18.98 million.
What Form 706 Requires
Your executor must list and value all worldwide assets, report gifts made during life exceeding annual exclusions, calculate estate tax due if any, and provide documentation of asset values. For expats, this often requires working with appraisers in multiple countries to establish fair market values.
What If I’m Married to a Non-U.S. Citizen?
The unlimited marital deduction is available only when your surviving spouse is a U.S. citizen. If your spouse is a non-U.S. citizen—including U.S. permanent residents with green cards—the unlimited deduction doesn’t apply, and special planning is required
Annual Gifting Limits
You can gift up to $190,000 per year to your non-citizen spouse without gift tax consequences. This exceeds the $19,000 annual exclusion for other recipients but doesn’t provide the unlimited marital deduction available for U.S. citizen spouses.
The QDOT Solution
A Qualified Domestic Trust (QDOT) defers estate taxes when leaving assets to a non-citizen spouse. Tax is deferred until your spouse dies or takes distributions from the trust.
QDOT requirements:
- At least one trustee must be a U.S. citizen or a U.S. domestic corporation
- The trust must meet specific IRS structural requirements
- Estate tax is deferred, not eliminated
Thomas, a U.S. citizen, is married to Marie, a French citizen. His estate is worth $10 million. Without planning, only $190,000 annually passes tax-free; the remaining $9.81 million is subject to an immediate estate tax of approximately $3.9 million.
With a QDOT, the entire $10 million goes into the trust for Marie’s benefit. She receives income from the trust during her lifetime. Estate tax is deferred until her death, potentially under more favorable circumstances if estate tax laws change.
How Can I Reduce My Estate Tax?
1. Make Annual Gifts
Give $19,000 per recipient per year without using your lifetime exemption. A couple can give $38,000 per recipient annually.
A couple with two children and four grandchildren can transfer $228,000 annually ($38,000 × 6), removing $2.28 million from their taxable estate over a ten-year period.
2. Maximize Married Couple Exemptions
Properly structured estates let couples pass $27.98 million tax-free through portability. Ensure that your estate documents and beneficiary designations align with this strategy.
3. Create Irrevocable Life Insurance Trusts
Life insurance proceeds typically count in your estate. An irrevocable life insurance trust (ILIT) owns the policy, removing death benefits from your taxable estate while providing for your beneficiaries.
4. Consider Charitable Remainder Trusts
Donate appreciated assets to charity, receive lifetime income, and remove assets from your taxable estate. You get a current tax deduction and reduce future estate taxes.
5. Structure Foreign Business Ownership Carefully
Ownership in foreign corporations creates complex estate tax issues. Consider restructuring to minimize estate inclusion while maintaining operational control. Collaborate with professionals who are familiar with both U.S. estate tax and international business law.
6. Review and Update Regularly
Review your estate plan every 3-5 years and after:
- Marriage or divorce
- Birth or adoption of children
- Significant asset value changes
- Moving to new countries or states
- Changes in tax laws
What Other Reporting Do My Heirs Need to Know?
1. FBAR Continues After Death
If you had foreign accounts exceeding $10,000, your executor must continue FBAR filing (FinCEN Form 114) for the estate until accounts are distributed.
2. FATCA Form 8938 May Be Required
Estates with specified foreign assets exceeding thresholds must file Form 8938 with the estate’s tax return (Form 1041).
3. Foreign Business Forms Continue
If you owned foreign corporations requiring Form 5471 or foreign partnerships requiring Form 8865, your estate must continue filing until ownership transfers.
4. State Estate Tax Returns
Beyond federal Form 706, your executor may need to file separate returns in states where you owned property or maintained residency.
Three Estate Planning Scenarios
Scenario 1: Modest Estate Across Multiple Countries
Linda lives in Thailand with worldwide assets of $4.2 million:
- Thai home: $800,000
- Thai investment accounts: $1.5 million
- U.S. retirement accounts: $1.2 million
- Rental property in Texas: $700,000
Her estate plan includes:
- A Will valid in both Thailand and Texas
- Beneficiary designations on all accounts
- Power of attorney documents for both countries
- Instructions for the executor on accessing foreign accounts
Result: No federal estate tax (under $13.99M). No Texas estate tax (Texas has none). Thai inheritance taxes may apply under Thai law.
Scenario 2: Large Estate With Treaty Relief
Patricia, a U.S. citizen in France for 30 years, has $20 million in worldwide assets. Her estate includes French real estate, French investments, and U.S. retirement accounts.
Her estate plan uses:
- U.S.-France estate tax treaty to coordinate taxing rights
- FEIE planning during life to maximize foreign tax credits
- French estate planning documents alongside U.S. documents
- Professional executors in both countries
Result: France taxes the estate first (as the primary domicile). The U.S. provides a foreign tax credit for taxes paid to the French government. The total tax burden is approximately 30-35%, instead of 50% or more, without treaty coordination.
Scenario 3: Non-Citizen Spouse
Carlos, a U.S. citizen in Mexico, is married to Elena, a Mexican citizen. His $12 million estate includes:
- Mexican home: $1.5 million
- Mexican business interests: $7 million
- U.S. investments: $3.5 million
His estate plan includes:
- QDOT established before death
- $190,000 annual gifts to Elena during life
- Life insurance in ILIT to provide liquidity for estate taxes
- Mexican will for Mexican assets
Result: QDOT defers estate tax. Elena receives income from the trust. Estate tax of approximately $800,000 is eventually due but deferred until her death, paid from trust assets or life insurance proceeds.
Get Expert Help With Estate Planning
Estate planning for Americans abroad requires expertise in both U.S. federal law and your country of residence. Small mistakes in structuring can cost heirs hundreds of thousands in unnecessary taxes.
Whether you need help structuring your estate to minimize taxes, creating QDOTs for non-citizen spouses, coordinating with estate tax treaties, or ensuring executors can access your foreign assets, we can help.
No matter how late, messy, or complex your situation may be, we can help. You’ll have peace of mind, knowing that your estate plan was done right.
If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.
Cross-Border Estates Require Careful Tax Planning.
This article is for informational purposes only and should not be considered legal or tax advice. Estate tax laws are complex and subject to change. Individual circumstances vary significantly. Always consult with a qualified tax professional and estate planning attorney regarding your specific situation before making any decisions about estate planning.
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