How to Minimize US Estate Tax When Living Abroad: A Planning Guide for Expats 2025

You've built a successful life in London. Own a £1.2 million home. Have £800,000 in UK investments. Hold £400,000 in UK bank accounts. Plus you kept your $500,000 Miami condo and $300,000 US investment portfolio. Total worldwide assets is approximately $3.5 million.

You assume with $3.5 million, you're well below the $13.99 million tax exemption for 2025. No estate tax, right? But then your tax planner explains that your non-US citizen spouse only gets a $175,000 marital deduction, not unlimited. Your UK assets are subject to UK inheritance tax 40% over £325,000 and your US assets face US estate tax. Between both countries, your heirs could lose over $1 million to estate and inheritance taxes. And if heirs sell appreciated property, they may also face capital gains tax on real estate holdings.

The US-UK estate tax treaty provides some relief but doesn't eliminate double taxation entirely. Credits don't always fully offset taxes paid to both countries. And if you don't have proper planning—life insurance, trusts, strategic gifting—your family faces a 40% US estate tax bill plus 40% UK inheritance tax on overlapping assets, plus potential tax when properties are eventually sold.

US estate tax applies to worldwide assets regardless of where you live. UK property, French investments, German bank accounts—all count toward your US taxable estate. And while US citizens get a generous $13.99 million exemption rising to $15 million in 2026 under new legislation, additional complications arise when you're married to a non-US citizen, own property in multiple countries, or face estate/inheritance taxes in your country of residence. Working with an experienced expat tax advisor becomes essential for comprehensive planning.

Most expats don't realize they have estate tax exposure until it's too late. Here's how you can minimize US estate tax when living abroad for 2025, which planning strategies reduce or eliminate estate tax exposure, and how to coordinate US estate planning with foreign inheritance tax rules to preserve maximum wealth for your heirs.

How does US estate tax work for Americans living abroad?

Understanding the basics of US estate tax helps you evaluate your exposure and plan appropriately. This is separate from real estate capital gains tax, which applies when properties are sold during life or by heirs after death.

Who owes it: US citizens and domiciliaries (regardless of where they live) owe US estate tax on worldwide assets. Even if you've lived in France for 30 years, you're still subject to US estate tax on all assets globally.

What's included in taxable estate: Everything you own at death including US real estate, foreign real estate, US bank accounts and investments, foreign bank accounts and investments, business interests (US and foreign), life insurance proceeds (if you own the policy), retirement accounts (401k, IRA, foreign pensions), personal property and collectibles, and interests in trusts (in certain circumstances).

Exemption amounts for 2025-2026:

• 2025: $13.99 million per individual, $27.98 million per married couple
• 2026: $15 million per individual, $30 million per married couple (under One Big Beautiful Bill Act signed July 2025)
• Indexed for inflation annually after 2026

Tax rates: Progressive rates from 18% to 40%. Estates over $1 million face top rate of 40% on amounts exceeding exemption.

When tax is due: Estate tax return (Form 706) due 9 months after death. Tax payment due with return (extensions available but interest accrues on unpaid tax).

Key difference for expats: Non-US citizen spouse issues

Unlimited marital deduction: When a US citizen dies leaving assets to a US citizen spouse, there's unlimited marital deduction—no estate tax regardless of amount. The tax is deferred until the surviving spouse dies.

Non-US citizen spouse limitation: When a US citizen leaves assets to a non-US citizen spouse, the marital deduction is limited to $175,000 (2025, adjusted annually for inflation). Amounts above $175,000 transferred to non-citizen spouses are subject to estate tax unless special planning is used. Understanding estate tax for non us citizens is critical for mixed-citizenship couples.

Example: US citizen married to UK citizen dies with $5 million estate. Leaves everything to the UK citizen spouse. Only $175,000 qualifies for marital deduction. Remaining $4,825,000 exceeds personal exemption? If descendants used exemption for lifetime gifts, estate faces 40% tax on excess = potentially $1.9+ million estate tax even though spouse inherits everything.

Solution: Qualified Domestic Trust (QDOT) allows unlimited marital deduction for non-citizen spouses if properly structured (explained later).

Foreign inheritance/estate taxes create double taxation

Many countries where expats live also impose inheritance or estate taxes:

Country	Tax Type	Rates	Exemptions
UK	Inheritance Tax	40%	£325,000 (~$425,000)
France	Inheritance Tax	5-45% (varies by relationship)	€100,000 for children
Germany	Inheritance Tax	7-50% (varies by relationship)	€400,000 for children
Spain	Inheritance Tax	7.65-34%	Varies by region
Canada	Deemed disposition (capital gains)	Up to 27%	None (but capital gains treatment)
Australia	No inheritance tax	N/A	N/A

Double taxation problem: US taxes worldwide estate at 40%. UK taxes UK assets at 40%. Same assets potentially taxed by both countries. Treaty credits help but don't always eliminate double taxation entirely. Additionally, heirs selling inherited property face real estate capital gains tax on appreciation from the decedent's date of death basis.

What is the estate tax exemption for 2025 and beyond?

Recent legislation significantly increased estate tax exemptions, benefiting expat estate planning. Understanding the current US estate tax exemption levels is essential for planning.

One Big Beautiful Bill Act changes (2025)

Permanent exemption increase: Previously, high exemptions ($13.99 million in 2025) were temporary, set to revert to approximately $6-7 million in 2026. The One Big Beautiful Bill Act (OBBBA) signed July 2025 made increased exemptions permanent:

• 2026 and beyond: $15 million per individual ($30 million married couple)
• Indexed annually for inflation
• No sunset date—these exemptions continue indefinitely unless future legislation changes them

Planning impact: Most expat estates now fall well below the $15 million threshold, eliminating estate tax for the majority of expats. Focus shifts to:

• Non-citizen spouse issues (still only $175,000 marital deduction)
• Foreign inheritance/estate taxes
• Probate avoidance and administrative efficiency
• Capital gains tax on real estate planning when heirs sell inherited properties
• Wealth transfer strategies for very high net worth ($15M+ estates)

Unified gift and estate tax exemption

The $15 million (2026) exemption is unified—it applies to combined lifetime gifts plus estate value at death.

How it works: Every taxable gift you make during life uses part of your exemption. Whatever exemption remains at death shields your estate from tax.

Example: You give $5 million to children in 2026 (using $5 million of exemption). At death, you have $20 million in assets. The remaining exemption is $10 million ($15M - $5M used for gifts). Taxable estate: $20M - $10M = $10 million × 40% = $4 million estate tax.

Annual gift exclusion: Separate from lifetime exemption, you can gift $19,000 per person per year (2025, indexed for inflation) without using any lifetime exemption or filing gift tax return. Married couples can gift $38,000 per person per year ($19K each).

How can I minimize estate tax with a non-US citizen spouse?

Special planning is required when married to a non-citizen to preserve marital deduction benefits. An expat tax advisor can help structure these arrangements properly.

Qualified Domestic Trust (QDOT)

A QDOT allows unlimited marital deduction for property passing to non-citizen surviving spouses.

How QDOT works: Assets transfer to special trust at death. Trust pays income to surviving non-citizen spouses for life. At least one trustee must be a US citizen or US corporation. Principal distributions are subject to estate tax (with exceptions for hardship). When a surviving spouse dies, remaining trust assets are subject to US estate tax.

Benefits: Defers estate tax until surviving spouse's death or principal distributions. Provides for non-citizen spouses without immediate estate tax. Can grow assets tax-deferred during a spouse's lifetime.

Requirements: Trust must meet specific requirements, include mandatory US trustee provision, file annual reports with the IRS, and comply with ongoing requirements.

Example: US citizen married to Canadian dies with $8 million estate. Without QDOT: $175,000 marital deduction, remaining $7,825,000 could be taxable if exemption is already used. With QDOT: Full $8 million gets marital deduction treatment, tax deferred until Canadian spouse's death or distributions from trust.

Portability election

If married to a US citizen, portability allows the surviving spouse to use the deceased spouse's unused exemption.

How portability works: When the first spouse dies, can elect portability on estate tax return (Form 706). Surviving spouses get to use the deceased spouse's unused exemption plus their own.

Example: Husband dies in 2026 with $3 million estate. Uses $3M of his $15M exemption, leaving $12M unused. Wife elects portability. The wife now has $27M total exemption ($15M her own + $12M from husband). She can transfer $27M free of estate tax.

Critical limitation: Portability NOT available for non-US citizen spouses. This is why QDOT planning is essential for mixed-citizenship marriages.

Annual gifting to non-citizen spouse

Different annual gift rules apply for non-citizen spouses.

US citizen to US citizen spouse: Unlimited gifts without gift tax (covered by unlimited marital deduction).

US citizen to non-citizen spouse: $190,000 annual exclusion (2025, indexed for inflation). Can gift $190,000 per year to non-citizen spouses without using lifetime exemption or filing gift tax return.

Strategy: Systematically give $190,000 annually to non-citizen spouses to transfer wealth without estate/gift tax consequences. Over 10 years: $1.9 million transferred tax-free.

What strategies reduce estate tax for high-net-worth expats?

For estates potentially exceeding $15 million exemption, proactive planning minimizes tax exposure. Understanding both estate tax and capital gains tax on real estate implications ensures comprehensive planning.

Lifetime gifting strategies

Use annual exclusion: Gift $19,000 per person per year to children, grandchildren, and others. Married couple can gift $38,000 per person per year. For family of 4 children: $152,000 annually transferred gift-tax-free (children can be minors).

Use lifetime exemption: With $15 million permanent exemption, consider larger gifts to remove assets from estate. Gift $5 million to children now, appreciation on that $5 million occurs outside your estate. If $5 million grows to $10 million by death, entire $5 million appreciation escapes estate tax.

Example: Gift $5 million to children in 2026. Invest in stocks that double to $10 million over 15 years. At your death, only $5 million counted (gift amount, using exemption). The $5 million appreciation never enters your estate. Estate tax savings: $2 million (40% of $5M appreciation). Note: Recipients receive your cost basis, so they may face real estate capital gains tax when selling gifted property.

Irrevocable life insurance trusts (ILIT)

Life insurance proceeds are included in estate if you own the policy, but ILIT removes them from estate.

How ILIT works: Create irrevocable trust to own life insurance policy. The trust (not you) owns the policy and is the beneficiary. Premiums paid through gifts to trust (using annual exclusion). At death, trust receives insurance proceeds outside your estate.

Benefits: Life insurance proceeds escape estate tax. Provides liquidity to pay estate taxes if owed. Can provide funds to cover capital gains tax on real estate when heirs sell inherited properties. Can be structured to benefit non-citizen spouses without estate tax issues.

Example: $5 million life insurance policy. If you own it: $5M included in estate, potentially $2M estate tax (40%). If ILIT owns it: $5M excluded from estate, $2M tax saved. Heirs receive full $5M tax-free.

Grantor Retained Annuity Trusts (GRATs)

GRATs transfer asset appreciation to heirs while minimizing gift tax.

How GRAT works: Transfer appreciating assets to trust. Receive annuity payments for a term of years. At the end of term, remaining assets pass to beneficiaries (typically children). If assets appreciate more than the IRS assumed rate, excess growth transfers to beneficiaries gift-tax-free.

Benefits: Highly appreciated assets (successful business, growth stocks, real estate) can transfer substantial wealth to the next generation with minimal gift tax. If assets don't appreciate, they return to you—little downside risk.

Complexity: Requires professional setup and ongoing administration. Best for significant wealth transfer ($1M+ assets).

Qualified Personal Residence Trust (QPRT)

Transfers home to children at reduced gift tax value while you continue living there.

How QPRT works: Transfer home to trust, retaining right to live there for specified years. After term, home passes to children. Gift tax value is reduced because you retain use for a term of years.

Benefits: Remove appreciating real estate from estate at discounted value. Continue living in home during the trust term. After term, pay market rent to children (further reduces estate). Children receive stepped-up basis at your death for real estate capital gains tax purposes if trust is structured properly.

Example: $2 million home transferred to 10-year QPRT. Gift tax value might be $1 million (discounted for retained use). Home appreciates to $3 million over 10 years. Estate tax savings: $800,000 (40% of $2M appreciation that escaped estate).

How do I coordinate US estate tax with foreign inheritance taxes?

Expats often face taxation in multiple countries, requiring coordinated planning. Professional expat tax advisor services help navigate these complex international issues.

Estate tax treaties

The US has estate tax treaties with relatively few countries:

Countries with US estate tax treaties: UK, France, Germany, Netherlands, Italy, Switzerland, Australia, Japan, Denmark, Austria, Finland, Greece, Ireland, Norway, South Africa.

What treaties provide: Foreign tax credit for estate/inheritance taxes paid to treaty country. Clarification of which country has primary taxing rights on specific assets. Allocation of deductions and credits.

Limitations: Treaties generally don't eliminate taxation by both countries—they coordinate taxation to reduce (not eliminate) double taxation. Each treaty is unique—must read a specific treaty for your country.

Example - US-UK Treaty: UK citizen dies domiciled in UK owning US and UK property. UK taxes worldwide estate (including US property). US taxes US property. Treaty allows foreign tax credit on US return for UK tax paid on US property, partially offsetting double taxation. But credit may not fully eliminate double tax if rates and calculations differ.

Situs rules for estate/inheritance tax

Different countries have different "situs" rules—what property is subject to their taxation. Understanding these rules helps minimize real estate taxes and overall tax burden across jurisdictions.

US situs (what US taxes for non-residents): US real estate, US stocks and bonds, US business interests, tangible personal property located in the US. Not taxed by the US for non-residents: Foreign real estate, foreign bank accounts, foreign securities.

Foreign country situation: Varies dramatically. UK taxes worldwide assets of UK domiciliaries. France taxes French property regardless of owner's residency, plus worldwide assets of French residents. Spain has complex rules varying by region.

Planning consideration: Structure ownership to minimize exposure to both US and foreign estate taxes.

Example: US citizens living in France might hold US securities (taxed by US but not France) and French real estate in structures minimizing French inheritance tax.

Strategic asset location

Position assets to minimize total estate/inheritance tax burden across jurisdictions. This planning also considers capital gains tax on real estate when properties are eventually sold by heirs.

US citizen living in UK with both US and UK assets:

• US real estate: Will be taxed by US (estate tax) and possibly UK (inheritance tax if UK domiciliary)
• US securities: Taxed by US, generally not by UK
• UK real estate: Taxed by UK (inheritance tax), may be taxed by US (estate tax on worldwide assets)
• UK bank accounts: Taxed by UK and US

Optimization: Maximize US securities (single taxation). Structure UK real estate ownership to use UK exemptions. Consider life insurance to cover dual tax exposure on specific assets. Plan for real estate capital gains tax when heirs sell inherited properties.

What special issues affect expat estates?

Several unique complications arise for Americans living abroad.

Probate in multiple countries

Assets located in different countries may require separate probate proceedings.

Example: US citizen living in Spain dies owning:

• Spanish home
• US investment account
• UK bank account
• French vacation property

Result: Potentially four separate probate proceedings (Spain, US, UK, France), each with local attorneys, local rules, local costs, local timelines. Total probate costs could be 5-10% of estate value. Time to settle: 2-5 years.

Solutions: Joint ownership with right of survivorship for some assets. Trusts to avoid probate. Beneficiary designations for accounts where allowed. Strategic asset consolidation.

Currency fluctuations and valuation

Estate must be valued in US dollars for US estate tax, but assets held in foreign currencies.

Valuation date: Date of death values used. The exchange rate on the date of death determines USD value. Currency fluctuations between death and tax payment can create significant issues.

Example: Die owning €3 million in euros when EUR/USD is 1.10 (=$3.3M USD). Euro weakens to 1.05 by tax payment date (9 months later). Estate valued at $3.3M for tax purposes (owe tax on that), but euros only worth $3.15M when converted to pay US tax. Loss of $150K to currency fluctuation.

Foreign executor complications

Appointing non-US executors creates practical challenges.

Issues: US banks may resist dealing with foreign executors. Court proceedings in the US require US presence or representation. Tax filings require US tax expertise. Time zones and language barriers complicate administration.

Solutions: Appoint co-executors (one US-based, one in country of residence). Grant powers of attorney to US representatives. Work with attorneys in both countries coordinating estate settlement.

How NSKT Global Can Help with Expat Estate Tax Planning

NSKT Global specializes in integrated estate tax planning for Americans living abroad, coordinating US estate tax with foreign inheritance tax obligations. Our comprehensive services address estate tax for non US citizens and all complex international estate issues.

We provide comprehensive estate tax analysis by calculating potential US estate tax exposure based on worldwide assets, evaluating foreign inheritance/estate tax in your country of residence, modeling total estate tax burden under different scenarios, identifying assets subject to taxation in multiple jurisdictions, and determining your optimal estate planning strategy. We also analyze capital gains tax on real estate implications when heirs eventually sell inherited properties.

We offer QDOT planning for non-citizen spouses including drafting Qualified Domestic Trust documents complying with IRS requirements, structuring trusts to maximize benefits for surviving non-citizen spouses, appointing appropriate US trustees, explaining tax consequences of trust distributions, and integrating QDOT with overall estate plan.

We provide life insurance trust (ILIT) planning by designing irrevocable life insurance trusts removing insurance from estate, calculating insurance needs to cover estate tax liability and potential real estate capital gains tax obligations, structuring Crummey powers for annual exclusion gifts to trust, coordinating with insurance professionals for policy acquisition, and ensuring ongoing trust compliance and administration.

Whether your estate is $3 million or $30 million, our expertise ensures your heirs receive maximum inheritance while minimizing taxes paid to US and foreign governments. Our experienced team of expat tax advisor professionals provides personalized guidance for Americans living abroad navigating complex international estate planning.

Frequently Asked Questions

Q: Does the $15 million exemption apply to non-US citizen spouses?

The exemption applies to estates of US citizens. However, the unlimited marital deduction does NOT apply to non-US citizen spouses—only $175,000 qualifies for marital deduction unless you use a QDOT. This is a critical difference in estate tax for non us citizens spouse planning.

Q: Do I pay both US estate tax and foreign inheritance tax on the same assets?

Potentially yes. US taxes worldwide assets of citizens. Foreign countries tax assets within their jurisdiction. Treaties provide credits to reduce double taxation but may not eliminate it entirely. Professional planning minimizes this exposure.

Q: What happens to the capital gains tax basis when I die?

US assets receive "step-up" on the basis of fair market value at death. Heirs can sell immediately with minimal capital gains tax on real estate or other appreciated assets. Foreign assets may not receive a step-up depending on local laws. This is a key estate planning consideration.

Q: Can I use gifting to reduce my estate below the exemption?

Yes. Annual exclusion gifts ($19,000 per person per year) and larger gifts using lifetime exemption can systematically reduce estate size. Gifting $19,000 annually to 5 family members removes $95,000 from estate each year. Over 20 years: $1.9 million transferred estate-tax-free.

Q: How does the estate tax treaty between the US and my country work?

Treaties coordinate taxation and provide foreign tax credits, but each treaty is unique. Generally, you pay tax to both countries but get credit on one return for taxes paid to the other, reducing (not eliminating) double taxation. Review your specific country's treaty with an expat tax advisor for details.

Q: What's the difference between estate tax and capital gains tax on real estate?

Estate tax applies to the total value of your worldwide assets at death (40% on amounts over $15M exemption in 2026). Real estate capital gains tax applies when property is sold—you pay tax on the increase in value from when you bought it. At death, heirs receive stepped-up basis, reducing future capital gains tax on real estate when they sell.