Estate Planning Tips for International Families

Owning property or bank accounts in more than one country can feel like spinning plates on opposite sides of the globe. Add relatives with different passports and tax bills that arrive from directions you never expected.

At Citadel Law Firm PLLC® in Chandler, Arizona, we help families deal with those cross-border surprises every day. The thoughts below draw on that experience so you can protect wealth, cut red tape, and keep loved ones provided for, no matter where they live.

Key Cross-Border Estate Planning Issues

Planning for a single state is hard enough, yet international families face extra layers of law, tax, and paperwork. Assets may sit in several jurisdictions, each with its own rules about who inherits, how probate works, and which taxes apply. Before drafting documents, we need to look at legal systems, tax residency, domicile, and how each country labels an asset’s location for tax purposes.

• Legal systems differ. Common law countries let you direct assets by will or trust, while many civil law nations impose forced heirship on a portion of the estate.
• Domicile vs. residency. Where you live, intend to stay, or hold citizenship can pull you into multiple estate tax nets.
• Situs and treaties. The place an asset is “deemed” to sit decides which nation may levy a transfer tax, although a treaty can change that outcome.

Once these building blocks are clear, the rest of the plan falls into place more smoothly.

Common Law vs. Civil Law Systems

Most U.S. clients grew up trusting wills and trusts to pass wealth. That comfort comes from the flexibility found in common law. A personalized trust can bypass probate, stagger payouts, and even shelter assets from certain taxes.

Civil law countries, rooted in the Napoleonic Code, follow a mandatory succession formula. Children and spouses often receive fixed shares regardless of the wishes stated in a foreign will. Inheritance tax in those jurisdictions frequently lands on each heir rather than the estate as a whole, adding paperwork for every beneficiary.

Trusts may not be recognized at all, or they may trigger immediate income taxation on unrealized gains. Anyone relocating to Germany, France, or Spain with an existing U.S. revocable trust should have it reviewed long before the move.

With that contrast in mind, the next step is to pin down how governments decide whether you, or your estate, fall under their jurisdiction.

Citizenship, Residency, and Domicile: Definitions

Under U.S. income tax rules, the substantial presence test counts your U.S. days over a three-year span. Pass the threshold and you file as a resident for income tax, even if you hold no green card.

Domicile is different. It rests on living in a place with an open-ended intent to remain. Courts examine everything from voter registration to the placement of family photos on the wall. Transfer taxes focus on domicile, not just physical presence, so a short return trip to the U.S. rarely breaks the link.

These twin concepts explain why a person can be a non-resident for income taxes yet still owe estate tax on worldwide property. Clarity on status helps avoid surprise bills later on.

Term	Main Test	Impact on U.S. Transfer Tax
Citizenship	Passport or naturalization	Worldwide assets taxed
Residency	Substantial presence or green card	Worldwide assets taxed
Domicile	Living in the U.S. with no plan to leave	Worldwide assets taxed
Non-resident alien	Fails all three above	Only U.S. situs assets are taxed

The location of the property itself now takes center stage, especially for non-resident owners.

 

Situs Rules: Determining Asset Location for Tax Purposes

Situs means the legal home of an asset. For U.S. citizens and residents, it barely matters because worldwide property is already online. For a non-resident alien with a $60,000 exemption, classifying assets is critical.

General Situs Guidelines for Non-Resident Aliens

The Internal Revenue Code and Treasury regulations outline bright-line tests that can be summarized as follows.

1. Real property. Land and buildings inside U.S. borders are always U.S. situs.
2. Tangible personal property. Artwork, vehicles, or even physical cash located here also count as U.S. situs.
3. Intangible assets. Rules vary:
   • Stocks in U.S. corporations – U.S. situs.
   • Publicly traded bonds – usually foreign situs, thanks to a portfolio exemption.
   • Qualified plans from U.S. employment – U.S. situs.
   • Demand deposits in U.S. banks – treated as foreign situs.
4. Insurance. Policies issued by U.S.-licensed carriers are U.S. situs.

Sorting assets in this way allows families to focus on treaty benefits and credit opportunities next.

Tax Treaties and Foreign Tax Credits

The United States maintains roughly sixteen estate and gift tax treaties. They often raise the exemption for treaty residents, extend a marital deduction, and provide tiebreaker rules on domicile. For example, the treaty with the United Kingdom allows a non-resident British spouse to inherit far more than the $60,000 default amount without triggering U.S. estate tax.

Even in countries without a treaty, a foreign death tax credit under Internal Revenue Code § 2014 may soften double taxation, provided the asset is taxed abroad and included in the U.S. gross estate. Proper disclosure is vital because the credit disappears if the claim is omitted on the return.

With treaty relief mapped out, we can review the tools available to implement a flexible plan.

Estate Planning Tools and Techniques for International Families

No single structure fits every family, though the choices below cover most situations we see in practice.

Wills

A U.S. will can direct worldwide assets, yet a probate in another country may reject it. Some families maintain one primary U.S. will, plus short “situs wills” in countries where real property is located. Coordination is vital so the later document does not revoke the earlier one by mistake. Another option is a geographic will that references the laws of each jurisdiction in a single instrument.

Trusts

Moving abroad with a grantor trust can trigger problems. If a U.S. person becomes resident in a country that treats the trust as a separate taxpayer, income may be taxed each year even while it accumulates. In forced heirship nations, the trust might be ignored, leaving heirs exposed to back taxes and penalties. The United Kingdom sometimes treats a U.S. trust as a resident, leading to immediate income tax on unrealized gains.

Gifting Strategies

Lifetime gifts shrink the taxable estate and, in the U.S., annual exclusions refresh every year. Parents who plan to educate children in the States often fund Section 529 accounts early. U.S. growth is tax-free when used for qualified expenses, yet many foreign jurisdictions tax the build-up, so expatriates should confirm local treatment before relying on the account.

Qualified Domestic Trust (QDOT)

The unlimited marital deduction only protects gifts to a citizen spouse. A QDOT lets a non-citizen survivor receive income from the estate while deferring estate tax until the principal is distributed or the surviving spouse dies. The trust can be built into the will or added within 27 months after death, although treaty benefits may remove the need.

These tools work best when both spouses understand the special limits that apply to mixed-citizenship marriages.

Planning for Non-U.S. Citizen Spouses

Transfers to a non-citizen spouse above the annual limit (about $164,000 in 2022) consume the lifetime exclusion or trigger gift tax. One tactic is to move non-U.S. situs assets into the spouse’s name over many years, trimming the citizen spouse’s estate without eating into exemptions.

Lifetime Gifting to Non-U.S. Citizen Spouses

Using the annual exclusion each calendar year, along with birthdays and anniversaries when appropriate, gradually shifts value with minimal paperwork. Document each transaction so that the Internal Revenue Service can see a clear pattern of completed gifts.

Gifts and Inheritances from Foreign Persons

U.S. tax law does not impose income tax on the recipient of a gift or inheritance. The estate or donor pays any transfer tax instead. Heirs receiving inherited assets enjoy a step-up in basis to the date-of-death value, while gifts keep the donor’s basis. U.S. taxpayers must file Form 3520 for foreign gifts above $100,000 or smaller gifts from foreign entities that exceed the annual threshold.

U.S. Investments by Non-U.S. Persons

Non-residents who buy U.S. real estate or hold large stock portfolios create a taxable U.S. estate with only a $60,000 exemption. Many treaty countries provide greater relief, but proper titling still matters. Holding real estate through certain foreign companies can remove it from the U.S. estate tax base, though income and FIRPTA rules need to be weighed first.

Considering International Estate Planning? Contact Us Today

International estate planning should leave you confident that assets will reach the right hands with the least possible tax and hassle. Our attorneys, licensed in Arizona, Colorado, Minnesota, and North Dakota, handle wills, trusts, and probate while drawing on Of Counsel colleagues for civil litigation and intellectual property matters when business interests are involved. If you have cross-border concerns, please call us at 480-565-8020 or use our Contact Us page to schedule a meeting. Together, we can build a plan that keeps your family secure on both sides of the ocean.