Heirs Abroad: The International Estate

If anyone in your will lives outside the United States, decide what each heir gets by the kind of account, not by percentage. Send foreign heirs cash and life insurance, send US heirs the Roth, and give the pre-tax accounts to whichever heir pays the lower rate on them. Tell your executor to sell US securities and US real estate before any of it crosses a border. And keep every foreign relative out of the trustee’s chair of a US trust.

Three tax systems vote on every dollar you send abroad. Yours is the US estate tax, which looks at your citizenship and domicile, not at where the heir lives. The heir’s country follows rules you do not control, and they change the day the heir moves. The account votes last: a 401(k) owes its income tax no matter who inherits it. Families tend to spend the lawyer’s hours on the first and discover the other two at the bank.

The US side is the simple one. A US citizen or domiciliary is taxed on the worldwide estate, with the same $15 million exemption and the same 40% rate whether the heir lives in Ohio or Osaka (section “Taxation of Estate”), and the five state inheritance taxes look at how the heir is related to you, not at their passport (section “State Inheritance Tax: The One That Ignores Your Net Worth”). Only a non-citizen spouse changes the federal arithmetic (section “Marital Trusts: The QTIP and the A/B/C Structure”). When a foreign country taxes property that sits there—a flat in Paris, a house in Tuscany—IRC §2014, “Credit for foreign death taxes” credits that tax against the US estate tax on the same property. The United States also has estate tax treaties with about fifteen countries, among them the United Kingdom, France, Germany, Italy, Japan, and the Netherlands, that settle which country taxes what (IRS treaty list). India, China, Russia, and Spain have none.