Estate Planning 101 for Foreign Nationals

Estate planning for foreign nationals living in the United States involves unique considerations, as they must navigate both U.S. and possibly their home country’s legal systems. Here are some estate planning considerations for foreign nationals:

1. U.S. Estate Taxes

Residency Status: U.S. estate tax laws apply to both U.S. citizens and residents. Foreign nationals who are considered U.S. residents for tax purposes (i.e., those with a green card or who meet the substantial presence test) may be subject to U.S. estate tax on their worldwide assets. Non-residents may only be subject to U.S. estate tax on their U.S.-based assets (such as real estate or investments).
Estate Tax Exemption: U.S. estate tax exemptions are much lower for non-residents. In 2025, the exemption for U.S. residents is about $12.92 million, whereas for non-residents, it is only $60,000. This difference can create significant tax liability for foreign nationals with significant U.S. assets.
Estate Tax Rates: Estate tax rates for foreign nationals can be high, ranging from 18% to 40% depending on the value of the estate.

2. Choice of Domicile

Domicile vs. Residency: Estate tax laws often distinguish between domicile (where someone intends to permanently reside) and residency (where someone lives temporarily). For estate tax purposes, foreign nationals should be mindful of their domicile, as it could impact estate tax liability and the assets subject to U.S. taxation.
Planning for Domicile: Foreign nationals may want to establish that their domicile is outside the U.S. to reduce estate tax exposure, particularly if they own assets both in the U.S. and abroad.

3. Wills and Trusts

State Law vs. Foreign Law: Foreign nationals may have estate planning documents (i.e., wills, trusts) from their home country. However, they should review these documents for compliance with U.S. state laws where they reside. A U.S. will is often needed to address the distribution of U.S. assets, while their home country’s will may cover foreign assets.
Revocable vs. Irrevocable Trusts: Foreign nationals may use revocable living trusts to avoid probate, but careful planning is required, especially for tax purposes. In some cases, irrevocable trusts can offer estate tax planning benefits, but they may not be recognized in foreign jurisdictions, complicating the estate process.
Special Rules for Foreign Trusts: If a foreign national creates a trust outside the U.S., there may be specific U.S. tax reporting requirements. U.S. beneficiaries of foreign trusts may be subject to complicated tax rules.

4. Inheritance Laws in the Home Country

Competing Legal Systems: Foreign nationals need to be aware of the inheritance laws in their home country. Some countries, like those following civil law systems, have forced heirship/statutory rules that mandate certain beneficiaries (i.e., children or spouses) receive a portion of the estate, even if the U.S. will specifies otherwise. These laws could conflict with U.S. estate planning documents.
International Coordination: It may be necessary to coordinate estate planning documents across jurisdictions to ensure that the foreign will and U.S. will complement each other, and that the estate plan respects both U.S. and home country laws.

5. Assets in Multiple Countries

Real Estate and Business Interests: Foreign nationals often own property or businesses in both the U.S. and their home country. These assets may require separate planning. U.S. estate tax could apply to U.S. real estate, and foreign estate taxes may apply to overseas real estate.
Double Taxation: Foreign nationals need to consider the possibility of double taxation (estate taxes in both the U.S. and their home country). Some countries have estate tax treaties with the U.S. that provide relief from double taxation, but many do not. Understanding the terms of these treaties (if applicable) can help reduce tax liabilities.

6. Gift and Inheritance Taxes

U.S. Gift Taxes: U.S. gift tax laws also apply to foreign nationals. Foreign nationals who gift assets to U.S. citizens or residents may be subject to U.S. gift tax if the gifts exceed the annual exclusion amount ($17,000 per recipient in 2025). The U.S. has a separate gift tax exemption for non-residents, which may differ from estate tax exemptions.
Inheritance Taxes in the Home Country: Foreign nationals should consider any inheritance tax obligations in their home country, especially if they are planning to transfer assets to heirs living abroad.

7. Beneficiary Designations

U.S.-Based Accounts: For U.S. accounts (i.e., retirement accounts, bank accounts, life insurance), beneficiary designations can supersede the terms of a will. Foreign nationals should ensure that the beneficiary designations on these accounts are consistent with their overall estate plan.
Impact of U.S. Laws on Foreign Beneficiaries: Non-U.S. beneficiaries may face different tax treatment when inheriting U.S. assets. For example, foreign beneficiaries may be subject to a higher estate tax rate and may not be eligible for certain tax exemptions available to U.S. citizens or residents.

8. Healthcare Directives and Powers of Attorney

Cross-Border Recognition: Foreign nationals should create healthcare directives and powers of attorney that comply with both U.S. laws and the laws of their home country. Some countries may not recognize U.S.-style healthcare directives, and vice versa, so it’s important to have documents that are enforceable in both jurisdictions if needed.

9. Citizenship and Naturalization

Potential Citizenship Issues: If a foreign national is in the process of becoming a U.S. citizen, this could affect their estate tax exposure. For example, once they become a U.S. citizen, they would be subject to U.S. estate tax on their worldwide assets.
Inheritance from Non-Citizens: If the foreign national is married to a U.S. citizen, the surviving spouse may have to navigate different tax rules regarding inheritance, including marital deductions for estate taxes.

10. Consulting Professionals

Tax and Legal Advisors: Estate planning for foreign nationals needs particular attention by professionals familiar with both U.S. tax laws and international estate planning. A team of estate planners, tax advisors, and attorneys practicing in cross-border issues may help compliance with relevant laws and reduces tax exposure.

Conclusion:

Estate planning for foreign nationals living in the U.S. requires a careful balancing act between U.S. laws and the laws of the individual’s home country. It is critical for foreign nationals to consult legal and tax professionals who practice in cross-border estate planning to help carry out foreign nationals’ wishes and minimize tax exposure for their heirs.