Why Would a U.S. Citizen Need International Estate Planning?

Obtaining estate planning advice can be a daunting task for any family. In our constantly evolving world, it is becoming more commonplace for a U.S. citizen or U.S. domicile (a ‘U.S. Person’) to have foreign investments, become a resident of a foreign country, or to distribute their assets between U.S. Person beneficiaries and Non-Resident U.S. Person beneficiaries.

Does this mean that you need an estate plan that addresses the international aspects of your life? Absolutely. This area of law can be a landmine for estate planning practitioners and can significantly derail the manner in which you assumed your assets would be distributed after death.

I have briefly summarized a few common scenarios which would generally require the advice of an experienced international estate planning attorney. These scenarios are only intended to illustrate a brief overview, as each of these scenarios are extremely complex with no one-solution fits all.   

• You are a Non-Resident (residing in a foreign country) U.S. Person and own U.S. Situs Assets with a worldwide estate under the federal estate and gift tax exclusion amount ($13,990,000.00 for an individual in 2025).

A U.S. Person that dies will be taxed on their worldwide assets. If you have U.S. Situs Assets, such as real property, shares of stock issued by U.S. companies (this also includes all individual positions even if it is held by a foreign financial institution), tangible personal property, and U.S. bank accounts (if not exempt), then you will be required to obtain a Transfer Certificate by filing an affidavit with the IRS with an attached inventory of your worldwide assets. The U.S. Situs Assets cannot be transferred after your death until your representative receives the Transfer Certificate which can take up to two years to process. The Transfer Certificate will not be required if there is a U.S. appointed executor or administrator, but it is often difficult for a probate court to have jurisdiction over a Non-Resident U.S. Person. Many financial institutions will also automatically freeze an account when presented with a foreign death certificate. This can be mitigated with an analysis of your assets and structuring an estate plan to avoid the necessity of a Transfer Certificate. 

• You are a Non-Resident U.S. Person (residing in a foreign country) and own U.S. Situs Assets with a worldwide estate over the federal estate and gift tax exclusion amount ($13,990,000.00 for an individual in 2025).

This process is similar to the above referenced process but with the additional requirement of filing a Form 706 to obtain a Transfer Certificate. This can have a larger effect on families with assets above the federal estate and gift tax exclusion amount as their foreign assets may be illiquid. The surviving spouse of the decedent may have been relying on the liquid U.S. Situs Assets to sustain their lifestyles. This can also be resolved with an analysis of your assets and structuring an estate plan to avoid this from occurring or, at a minimum, mitigate the consequences for your family as much as possible. 

• You are a U.S. Person and intend to distribute your assets to beneficiaries that reside in a different country than you currently reside.

This comes up frequently in the following scenarios: (1) a Resident U.S. Person with a Non-Resident U.S. Person child that permanently resides in a foreign country creates a domestic trust with that child as a named beneficiary and (2) a Non-Resident U.S. Person with a Resident U.S. Person child creates a foreign trust naming that child as a beneficiary. Unfortunately, this can have significant implications on the beneficiary and the Trustee. For simplicity sake, a domestic trust that has a foreign beneficiary and a foreign trust with a U.S. Person beneficiary will have significant reporting requirements to the IRS and likely significant reporting requirements in the foreign country as well. This can result in severe penalties if not reported correctly or in a timely manner. Both of these scenarios can result in significant legal and administrative fees. This can usually be avoided by retaining an international estate planning attorney from both countries. They will work together to ensure that both the U.S. and foreign estate plans function well together and mitigate the above-mentioned consequences. 

• You are a U.S. Person with a worldwide estate over the federal estate and gift tax exclusion amount ($13,990,000.00 in 2025) and have a spouse who is a Non-Resident U.S. Person.

If a U.S. Person leaves assets to a spouse that is a Non-Resident U.S. Person, and the estate is over the federal estate and gift tax exclusion amount, the spouse will not qualify for the 100% estate tax marital deduction and portability of the deceased spouse’s unused estate tax exemption. This can result in the overall assets being significantly lower when transferred to the heirs at the death of the Non-Resident U.S. Person spouse. This can generally be remedied by the spouse becoming a U.S. Person or discussing with an international estate planning attorney whether implementing a qualified domestic trust (QDOT), which can allow for the deferral of estate taxes, would be right for you.

• You are a U.S. Person or long-term resident (holder of green card with permanent resident status for eight or more of the previous 15 calendar years) that is considering renouncing their U.S. citizenship or green card status.

When a U.S. Person renounces their citizenship or a long-term permanent resident (assuming they did not make a treaty election) terminates their lawful permanent residence status then they may be subject to an exit tax. This is a decision that can have a significant financial impact. The first step involves determining if you are a covered or non-covered expatriate. Non-covered expatriates will not have an exit tax, whereas a covered expatriate will have all property treated as being sold for its fair market value on the day before expatriation, and tax-deferred accounts will also be treated as being fully distributed. You will be considered covered if your net worth exceeds $2,000,000.00; your average annual net income tax liability over the past five years is over $206,000 in 2025; or you are not current with all U.S. taxes. This should be discussed with an international estate planning attorney as there are multiple solutions that can be used to mitigate the effects of the exit tax with a careful analysis of your assets.

These are only a few scenarios where contacting an international estate planning attorney would be critical. If you believe that you or your potential beneficiaries have international ties, it is always better to discuss your estate plan with an experienced international estate planning attorney rather than your heirs facing unexpected consequences that we often see.  For assistance with this, contact Kohnen & Patton’s International Estate Planning practice group.