Estate Planning For US Citizens Living Abroad

Estate planning for U.S. citizens living abroad comes with unique challenges, particularly when it comes to taxation. As a U.S. citizen, your global assets remain subject to U.S. estate taxes, regardless of where you live. Without proper planning, your estate could face significant tax liabilities, reducing the wealth passed on to your heirs. Understanding how estate tax exemptions, gift taxes, and strategic planning options work is essential to protecting your financial legacy.

This guide will help U.S. expats understand the key steps in estate planning and the best strategies to safeguard their wealth.

Understand Your U.S. Estate Tax Obligations

As a U.S. citizen living abroad, it’s essential to recognize that your global assets remain subject to U.S. estate taxes, irrespective of your country of residence. This means that upon your passing, the total value of your worldwide estate could be taxed by the U.S. government before distribution to your heirs.

Estate Tax Exemption and Rates

• Exemption Amount: For 2025, the federal estate tax exemption is $13.99 million per individual. This allows married couples to collectively exempt up to $27.98 million from federal estate taxes. ​
  
  
• Tax Rate: Any portion of an estate exceeding these exemption amounts is subject to a 40% federal estate tax rate. ​
  
  

Gift and Generation-Skipping Transfer (GST) Taxes

• Annual Gift Tax Exclusion: In 2025, you can gift up to $19,000 per recipient without incurring federal gift taxes. This means you can give $19,000 each to multiple individuals annually without tax consequences.
  
• Lifetime Gift Tax Exemption: Gifts exceeding the annual exclusion amount count against your lifetime gift tax exemption, which is unified with the estate tax exemption at $13.99 million for 2025. ​
  
  
• Generation-Skipping Transfer Tax: The GST tax applies to transfers made to individuals who are more than one generation younger than you, such as grandchildren. The GST tax exemption is also $13.99 million for 2025, with transfers exceeding this amount subject to a 40% tax rate.

Planning Considerations

Given the complexities of U.S. estate and gift tax laws, especially for expatriates, it’s crucial to develop a comprehensive estate plan that:

• Utilizes Exemptions Wisely: Strategically use your annual gift exclusions and lifetime exemptions to minimize taxable estate value.​
  
  
• Incorporates Trusts: Establish trusts to manage asset distribution, provide for beneficiaries, and potentially reduce estate tax liabilities.​
  
  
• Considers Portability: Married couples should consider electing portability, allowing a surviving spouse to use any unused portion of the deceased spouse’s estate tax exemption.
  
• Plans for Future Changes: Be aware that current exemption amounts are scheduled to sunset after 2025, potentially reducing the exemption to pre-2018 levels.

To minimize tax liability, expats should consider strategies such as gifting assets during their lifetime, utilizing trusts, and taking advantage of spousal exemptions.

Note: The information provided is based on current laws and regulations as of 2025. Tax laws are subject to change, and it’s essential to consult with a qualified tax advisor or estate planning professional to ensure compliance and optimize your estate planning strategy.

Know the Estate Laws in Your Country of Residence

Each country has its own inheritance laws, tax regulations, and probate processes, which can significantly impact how your assets are distributed after your death. Estate planning for U.S. citizens living abroad must take these local laws into account to avoid unexpected legal or tax complications.

Forced heirship laws: Some countries, particularly those with civil law systems (e.g., France, Spain, Germany, and Japan), enforce forced heirship rules. This means a portion of your estate must go to specific heirs, such as children or spouses, regardless of the instructions in your U.S. will.

High inheritance tax jurisdictions: Countries like France, Spain, and Japan impose substantial inheritance taxes, even on foreign residents. Without proper planning, these taxes can significantly reduce the wealth passed on to your beneficiaries.

Common law vs. civil law:

• In common law countries (e.g., the UK, Canada, Australia), wills generally provide more flexibility in how assets are distributed.
• In civil law countries, succession laws may override a U.S. will, meaning even if your U.S. estate plan dictates a specific distribution, local law may not recognize it.

If you own property, bank accounts, or investments in multiple countries, it is crucial to consult an international estate planning attorney to help you with your will and estate plan comply with local laws. In some cases, setting up separate wills for different jurisdictions or utilizing trusts may be necessary to maintain a smooth transfer of assets.

Create a U.S. and Local Will

A will helps make sure that your assets are distributed according to your wishes rather than default legal rules. U.S. citizens abroad should consider drafting:

• A U.S. Will: Covers U.S.-based assets (bank accounts, real estate, investments).
• A Local Will: Addresses assets located in your country of residence to avoid legal conflicts and delays in probate.

It’s crucial that these wills do not contradict each other. Some expats use an international will, recognized under The Hague Convention, to simplify cross-border estate planning.

Utilize Trusts for Privacy and Tax Efficiency

Trusts can be a powerful tool for estate planning for U.S. citizens living abroad, offering benefits such as asset protection, tax efficiency, and privacy. By placing assets into a trust, you can control how they are distributed while minimizing exposure to estate taxes and avoiding the complexities of probate in multiple jurisdictions. However, choosing the right trust structure is critical to ensuring compliance with both U.S. and foreign tax laws.

Key Trust Options for U.S. Expats

Revocable living trusts:

• Allow you to retain control of your assets during your lifetime.
• Help avoid U.S. probate, ensuring a smooth transition of assets to beneficiaries.
• Do not reduce estate tax liability, as assets remain part of your taxable estate.

Irrevocable trusts:

• Remove assets from your taxable estate, potentially reducing U.S. estate tax exposure.
• Provide asset protection from creditors and legal claims.
• Cannot be altered or revoked after they are established.

Foreign grantor trusts:

• Allow greater tax efficiency for assets held outside the U.S. while maintaining control over distributions.
• Must be carefully structured to comply with U.S. reporting requirements (e.g., IRS Forms 3520 and 3520-A).
• Can be beneficial for expatriates looking to invest internationally while maintaining tax advantages.

Qualified domestic trusts (QDOTs):

• Designed for U.S. citizens with a non-citizen spouse to defer estate taxes on inherited assets.
• Can help safeguard a surviving non-U.S. citizen spouse can receive distributions without immediate estate tax consequences.

Using the right trust structure can help mitigate double taxation risks, provide confidentiality by keeping assets out of public probate records, and streamline cross-border wealth transfers. However, trusts with foreign ties must comply with strict IRS regulations to avoid penalties. At Blacktower Financial Management, we specialize in helping U.S. expats establish tax-efficient trust structures that align with their estate planning goals.

Consider Life Insurance as a Wealth Protection Tool

Life insurance provides liquidity to cover estate taxes, debts, and inheritance distributions. U.S. expats should be aware of:

• U.S. vs. Foreign Life Insurance Policies: U.S.-issued policies offer tax advantages but may not be available to non-residents.
• Local Tax Treatment: Some countries impose taxes on life insurance payouts, so check local regulations before purchasing a policy.

For high-net-worth individuals, an Irrevocable Life Insurance Trust (ILIT) can shield policy proceeds from estate taxes.

Avoid Double Taxation with Estate Tax Treaties

The U.S. has estate and gift tax treaties with several countries, including the UK, France, Germany, and Canada. These treaties help prevent double taxation by:

• Allowing tax credits for foreign estate taxes paid.
• Providing exemptions for U.S. citizens in treaty countries.
• Defining residency rules to determine estate tax jurisdiction.

If you reside in a treaty country, understanding the agreement’s provisions can help reduce estate tax exposure.

Plan for Retirement and Beneficiary Designations

Many expats hold 401(k)s, IRAs, pensions, and offshore investments, which require careful planning:

• Retirement Accounts: Name beneficiaries to avoid probate and be a tax-efficient transfers.
• Foreign Pensions: Understand local taxation and U.S. reporting requirements to avoid penalties.
• Investments: Some foreign mutual funds and ETFs trigger PFIC (Passive Foreign Investment Company) tax rules, leading to high U.S. tax rates.

Regularly updating your beneficiary designations prevents conflicts and unintended distributions.

Keep Up With U.S. Reporting Requirements

The IRS requires U.S. citizens abroad to report foreign financial assets. Failing to comply can lead to severe penalties. Key filings include:

• FBAR (Foreign Bank Account Report): Required if foreign bank accounts exceed $10,000.
• FATCA (Foreign Account Tax Compliance Act): Must report foreign assets over $200,000 ($400,000 for couples).
• Form 3520/3520-A: For foreign trusts, gifts, and inheritances.

Working with a tax advisor who specializes in expatriate taxation can help maintain compliance and avoid IRS penalties.

Assign a Power of Attorney and Advance Healthcare Directive

If you become incapacitated, having a Financial Power of Attorney allows a trusted individual to manage your U.S. and international assets. A Healthcare Directive aligns medical decisions with your preferences, even if you’re living abroad.

Consider appointing different powers of attorney for U.S. and foreign assets to navigate legal differences between jurisdictions effectively.

Estate Planning For US Citizens Living Abroad

U.S. citizens living abroad must take extra steps to their wealth is protected and transferred efficiently. By understanding U.S. estate tax laws, local inheritance rules, and the benefits of trusts, tax treaties, and life insurance, expats can minimize tax burdens and legal complications for their beneficiaries.

A well-structured estate plan secures your legacy, no matter where in the world you reside. Taking proactive steps now will provide peace of mind and financial security for future generations.

Navigating estate planning while living abroad can be complex, but you don’t have to do it alone. Blacktower Financial Management specializes in cross-border wealth management, helping U.S. citizens protect their assets, minimize tax exposure, and a seamless transfer of wealth.

Work with an International Estate Planning Professional

At Blacktower Financial Management, we understand the complexities U.S. expats face when it comes to estate planning. With assets in multiple jurisdictions and varying tax regulations to navigate, having professional guidance is essential.

Our team of cross-border financial advisors and estate planning specialists can help you:

• Reduce tax exposure through strategic trusts, gifting, and tax treaties.
• your wills and estate plans comply with both U.S. and foreign laws.
• Protect your heirs from unnecessary legal and tax burdens.

With decades of experience in international wealth management, we provide tailored estate planning solutions to help you secure your legacy, wherever you reside.

Get in touch with our team of advisors today to create a tailored estate plan that secures your financial future and gives you peace of mind—no matter where in the world you reside.

Sources

Morgan Lewis

Faegre Drinker

Schwab

IRS

Investopedia

Frost Law

Creative Planning