Key Estate Planning Considerations for International Households

Many cross-border families and individuals with multiple nationalities live, work, and invest in the United States. While these connections create opportunity, they also introduce complexity — particularly when it comes to estate and gift tax exposure. These families and individuals need tailored gift and estate plans to alleviate tax burdens, protect loved ones, and provide clear instructions to their family members and friends.

Without proactive planning, families risk unnecessary tax burdens, administrative complications, and unintended outcomes for their beneficiaries.

Understanding how U.S. transfer tax rules apply is the first step in building an effective estate plan.

Why Your Classification Matters

While a non-U.S. citizen may be classified as a resident alien for immigration and income tax purposes, they could also be considered a non-domiciled alien (NDA) for estate and gift tax purposes.

For estate and gift tax purposes, domicile — not residency — is the determining factor.

An individual is generally considered an NDA if they do not intend to remain in the United States indefinitely. This determination is based on facts and circumstances, including, but not limited to:

• Length of U.S. presence
• Immigration status
• Location of personal and business ties
• Statements of intent and long-term plans

This distinction is critical because tax exposure varies dramatically based on classification.

The Key Difference

• U.S. domiciliary exemption (2026): $15,000,000 per individual
• NDA exemption: $60,000 (not indexed for inflation) for U.S.-situs assets

Income Tax vs. Estate Tax Treatment

For U.S. income tax purposes, individuals who are not U.S. citizens, green card holders, or tax residents are generally taxed only on U.S.-source income. However, estate and gift tax rules follow a completely different framework based on domicile and asset location. For U.S. income tax purposes, a foreign investor will typically only be subject to income tax on U.S. sourced income (rather than worldwide income) if they are not a U.S. citizen, green card holder, or U.S. tax resident. The U.S. federal income tax rates on various types of taxable income are the same as those applicable to U.S. citizens or residents. Reduced withholding and tax treaty benefits can lessen the tax impact with proper planning.

How U.S. Transfer Taxes Apply to NDAs

Gift Tax

NDAs are generally subject to U.S. gift tax only on transfers of U.S. situs tangible property, for example:

• U.S. real estate
• Tangible personal property located in the U.S.

Key thresholds:

• Annual gift tax exclusion (2026): $19,000 per recipient
• Non-citizen spouse exclusion (2026): $194,000

Cash may be treated as non-U.S. situs property when held outside the U.S. Gifts made by NDAs outside the U.S. may avoid U.S. gift tax, but structuring, timing, and the location of funds must be carefully evaluated.

If a taxable gift is made, Form 709 must be filed, even if no tax is ultimately due.

Estate Tax

The estate of an NDA is subject to U.S. estate tax only on U.S. situs assets. The tax is assessed at the same rates as for a U.S. domiciliary, ranging from 18% to 40%. However, unlike U.S. taxpayers, NDAs receive only a $60,000 exemption (absent a tax treaty), which significantly increases the likelihood of tax exposure.

Because of this low exemption, even modest U.S. holdings, such as real estate or U.S. equity investments, can trigger estate tax liability for NDAs.

Reducing Estate Tax Liability

NDAs may reduce estate tax exposure through:

• Allowable deductions (debts, administration expenses, mortgages)
• Charitable contributions to U.S. organizations
• Credits for prior U.S. gift tax paid
• Treaty-based relief (where available)

If the surviving spouse is not a U.S. citizen, the marital deduction is generally unavailable unless:

• A Qualified Domestic Trust (QDOT) is used, or
• A treaty overrides the limitation

Generation-Skipping Transfer Tax (GSTT)

In addition to the gift and estate tax, the Generation Skipping Transfer Tax (GSTT) can also apply to NDAs. This tax covers any generation-skipping transfer of U.S. situs property. Generation-skipping transfers are gifts and transfers to unrelated persons over 37.5 years younger than the donor or to related persons more than one generation younger than the donor, such as grandchildren. Both outright transfers and contributions to trusts could be subject to GSTT.

For U.S. domiciliaries, the GSTT exemption aligns with the estate/gift exemption limit (2026: $15M).

Understanding U.S. Situs Property

The estate of an NDA or the gift made by an NDA is only subject to the U.S. federal estate and gift tax on U.S. situs assets. The list below covers some examples:

Planning for Cross-Border Couples: Exclusions and Limitations

The chart below generally outlines the applicable exclusion and deduction amounts.

Non-Tax Reasons for Estate Planning

Estate planning is the process of anticipating and arranging for the management and disposal of your estate during your life, as well as at and after death. It also involves minimizing gifts, estate, generation-skipping, and income taxes.

A will is part of the estate plan. Depending on the complexity of the situation, an estate planner might use other tools such as trusts, pass-through entities, and life insurance to accomplish your estate planning goals.

While tax efficiency is important, estate planning also helps:

• Ensure assets pass to intended beneficiaries
• Reduce administrative burden on family members
• Protect assets from unintended recipients

For foreign business owners with U.S. investments, proper planning is especially important when:

• Transitioning ownership
• Selling or exiting a business
• Distributing assets across jurisdictions

The Role of a Trust in Estate Planning

A trust is a fiduciary arrangement allowing a third party, or trustee, to hold assets on behalf of a beneficiary. A properly planned international trust structure can help international families minimize or eliminate the U.S. estate tax, as well as provide important other business benefits.

There are many kinds of trusts, and the most popular type for an NDA is the U.S. situs foreign trust. A U.S. situs foreign trust is generally not subject to U.S. income tax, except for withholding tax on any applicable U.S. source income.

How Tax Treaties Can Change the Outcome

The United States maintains estate and/or gift tax treaties with several countries to help mitigate double taxation.

These treaties may:

• Modify residency and domicile determinations
• Adjust situs rules
• Provide credits or exemptions

For cross-border families, treaty analysis is often a critical first step before structuring assets or making transfers.

Currently, the U.S. has estate or gift tax treaties, or both, with:

Why Proactive Planning Matters

The primary objective for implementing an estate and gift plan is to alleviate or eliminate the abovementioned U.S. tax burdens.

Form 706-NA United State Estate (and Generation Skipping Transfer) Tax Return is due nine months after the death of an NDA owning taxable assets in the U.S. with a FMV over $60,000. If there is no U.S. estate executor, every person in actual or constructive possession of any property of the decedent is liable to file the return.

By the time Form 706-NA is due, it is usually too late to take advantage of any planning opportunities. Proactive planning — especially before acquiring U.S. assets or relocating — is essential to preserving wealth and minimizing administrative burden.