How Living Abroad Can Complicate Your Estate Plan

If you're a U.S. citizen or permanent resident, all your worldwide assets—including real assets such as collectibles, precious metals, real estate, and even vehicles—are considered part of your taxable estate.

Of course, U.S. taxes apply only if your total estate exceeds the lifetime estate and gift tax exclusion.

Many countries consider you a resident for tax purposes if you spend more than half of any given year there. That's especially relevant if you reside in a country that, like the U.S., considers all your worldwide assets part of your taxable estate.

If you're worried about the possibility of double taxation, take heart: The U.S. has estate or gift tax treaties with 15 countries (Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, South Africa, Switzerland, and the United Kingdom). Such treaties help clarify which country has the primary right to tax your assets and may allow your estate or heirs to claim credits or exemptions that reduce the overall tax burden.

Many U.S. estate-planning tools are often neither recognized nor enforceable abroad. Powers of attorney tend to have little or no legal effect outside the U.S.; wills often require specific language or adherence to local inheritance laws; and trusts may be limited or ignored altogether. In fact, placing foreign assets in a U.S.-based trust can create complex legal and tax complications.

Therefore, it's important to create local wills or legal documents that comply with the laws of each country where you reside or own property—and, in turn, to help make sure such documents don't conflict with those of your home or other country.

Many countries—including Brazil, Japan, and most European nations—have forced heirship rules that typically require that a fixed portion (often 50% or more) of your assets go to your children.

For example, if you and your spouse jointly own a home in Spain, your half of the home won't automatically transfer to your spouse upon your death; instead, your children will be entitled to their legally mandated share under forced heirship rules. This is true even if you're a nonresident, since the law governing the inheritance of real property is typically determined by the location of the property itself.

That said, there's a workaround for U.S. citizens who live or own property in any European Union member state except Denmark and Ireland. Under the European Succession Regulation, citizens of many countries can elect to have the law of their nationality, rather than forced heirship rules, govern their estate. This choice must be made explicit in your will or similar legally recognized estate-planning document.

Although the U.S. taxes one's estate rather than one's beneficiaries, most foreign countries do the opposite. This can have serious consequences. In Germany, for instance, spouses and children face a progressive tax rate for amounts exceeding the exemption. In France, on the other hand, spouses can inherit an unlimited amount tax-free, whereas children and parents receive an exemption before facing progressive inheritance rates.

As a result, leaving behind illiquid assets such as real estate without the cash to pay accompanying inheritance taxes can force your heirs to leverage or sell property to cover their tax obligations—something that can likely be avoided through insurance payouts or other liquidity-planning provisions.

Without experienced advisors on the ground, even well-intentioned plans originating in the U.S. can be delayed or outright rejected because of their incompatibility with local legal frameworks. Working with estate attorneys who understand cross-border issues won't eliminate every complication, but it can help you structure your plans in ways that are more likely to be recognized and carried out as intended.