It is common for people to assume that foreign assets are not relevant to their “U.S.” estate plans. However, foreign — indeed, all of your assets — should be included in your estate plan. Financial experts can structure ownership of your foreign assets according to U.S. laws and those of the country where the are located to help your estate avoid unnecessary tax consequences.
Avoiding Double Taxation
U.S. citizens are subject to federal gift and estate taxes on all worldwide assets, regardless of where they live or where their assets are located. So, if you own assets in other countries, there is a risk of double taxation if the assets are subject to estate, inheritance or other death taxes in those countries. You may be entitled to a foreign death tax credit against your U.S. gift or estate tax liability — particularly in countries that have tax treaties with the United States — but in some cases those credits are not available.
Keep in mind that you are considered a U.S. citizen if you meet one of two conditions:
1. You were born in the United States, even if your parents have never been U.S. citizens and regardless of where you currently reside, unless you have renounced your citizenship, or
2. You were born outside the United States but at least one of your parents was a U.S. citizen at the time.
Even if you are not a U.S. citizen, you may be subject to U.S. gift and estate taxes on your worldwide assets if you are domiciled in the United States. Domicile generally means you reside in a place with an intent to stay indefinitely and to always return when you are away. Once the United States becomes your domicile, its gift and estate taxes apply to your assets outside the United States, even if you leave the country, unless you take steps to change your domicile.
Because the 2024 federal gift and estate tax exemption is $13.61 million, you may not be concerned about these taxes. But remember, the exemption amount is scheduled to revert to its pre-2018 levels of $5 million (indexed for inflation) as of the beginning of 2026. Even if your estate is well within the current exemption amount, you should probably plan for a potential estate tax bill down the road. Also, for married couples, the rules are different — and potentially a lot more complex — if one spouse is neither a U.S. citizen nor considered a resident for estate tax purposes. For example, the annual exclusion for gifts to a non-U.S. citizen spouse is $185,000 in 2024, while an unlimited amount can be gifted to a U.S. citizen spouse.
Single vs. Separate Wills
To ensure that your foreign assets are distributed according to your wishes, your will must be drafted and executed in a manner that will be accepted in the United States as well as in the country or countries where the assets are located. Often, it is possible to prepare a single will that meets the requirements of each jurisdiction, but it may be preferable to have separate wills for foreign assets. One advantage of doing so is that separate wills, written in the foreign country’s language (if not English) can help streamline the probate process.
If you prepare two or more wills, it is important to work with local counsel in each foreign jurisdiction to ensure that the wills meet each country’s requirements. And it is critical for your U.S. and foreign advisors to coordinate their efforts to ensure that one will does not nullify the others.
Role of Nationality
Estate planning can be complicated for foreign citizens living in the United States. One source of confusion is the difference between residency and domicile. If you are a U.S. resident — which is based on the amount of time you spend in the United States — you are subject to U.S. income taxes on your worldwide income. But resident aliens are not subject to U.S. gift and estate taxes unless they are domiciled in the United States. You can be a resident without being a domiciliary, although residency is a factor in determining domicile.
If you are not a U.S. citizen or domiciliary — so if you are a resident alien who is not domiciled in the United States or you are a nonresident alien — U.S. gift and estate taxes will not reach your assets outside the United States. However, you will be subject to taxes on assets that are “situated” in the United States, including real estate and certain business investment taxes. And unlike the $13.61 million allowed to U.S. citizens and domiciliaries in 2024, the estate tax exemption amount is far less for resident and nonresident aliens.
Ask Your Advisor
The bottom line: If you own foreign assets, disclose and account for them in your estate plan. And if you are unsure about whether an asset belongs in your estate and what the tax implications might be, consult with your estate attorney and tax advisor.
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Our firm provides the information in this article for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this blog are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability and fitness for a particular purpose.
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