The Challenges of Receiving a U.S. Inheritance While Living Abroad

Navigating taxes and investments as an American citizen living overseas is complicated on its own. The emotional stress of losing a loved one is already overwhelming, but as an American expat, pairing this loss with new cross-border inheritance tax requirements and unfamiliar tax regimes can make the situation even more daunting. Understanding how inheritance tax, estate tax and U.S. reporting rules apply to your situation can help you avoid costly mistakes and gain more peace of mind as you integrate a foreign inheritance into your financial life.

From a tax perspective, inheriting money as a U.S. expat often means coordinating rules in at least two countries: the United States and your country of residence. Each may treat the estate, the bequest and foreign assets differently for income tax, transfer tax and local inheritance purposes. Fortunately, a qualified wealth manager who has experience working with American expatriates can guide you toward making informed financial planning decisions designed to help minimize your taxes and maximize your inheritance. For additional background, see Expat Guide: Investing and Planning for Americans Abroad.

Tip #1: Know the Difference Between Inheritance Tax And Estate Tax

While the two may sound similar, there are important differences between estate tax and inheritance tax. Those differences can significantly impact your financial situation as a U.S. expat, because who ultimately pays the tax — the estate or the beneficiary— varies based on which tax regime applies in a given country. For more on global estate rules, see Estate and Inheritance Tax Transfer Rules for U.S. Expats.

Inheritance tax

As a general rule, under an inheritance tax system the person inheriting (the heir or beneficiary) pays the tax on assets transferred as a result of a loved one’s death. The taxable event is primarily tied to the right to receive a transfer incident to death, not necessarily actually receiving the inherited asset. That constructive-receipt concept raises a practical issue: how does an heir pay inheritance tax before any financial assets or foreign inheritance proceeds have actually been distributed?

Some countries modify their inheritance tax rules to allow the beneficiary to pay after receiving the bequest, but you should never assume this is the case. Always confirm whether your host country imposes an inheritance tax on the beneficiary, whether it distinguishes between a foreign inheritance and a domestic one, and when the tax liability arises for local tax purposes.

Estate tax

In contrast, an estate tax is imposed on the deceased person’s estate itself. Under an estate tax regime, heirs receive inherited assets only after any required estate tax has been paid by the executor. The executor or administrator handles filing and paying the tax, and beneficiaries receive their inheritance after estate-level taxes have been settled. This can create delays for an American citizen heir living abroad who’s waiting on distributions from a U.S. estate. For a broader overview of U.S. estate rules, Creative Planning’s article Estate Planning Essentials for the Great Wealth Transfer is a helpful resource.

In simplified form:

• If a country has an estate tax, the late person’s estate pays taxes before assets are distributed to heirs.
• If a country has an inheritance tax, you as the beneficiary may owe tax simply for being entitled to receive the assets or, alternatively, when you actually receive them, depending on the local tax regime.

From a planning standpoint, understanding whether your country applies inheritance tax, estate tax or foreign inheritance tax — and whether it coordinates with U.S. rules — is a critical first step in protecting your inheritance.

Tip #2: Understand Whether a U.S. Tax Treaty Applies in Your Country of Residence

The United States does not impose a federal inheritance tax. Instead, it imposes a federal estate tax on certain estates before assets are distributed. In many cases, the federal estate tax is only relevant for larger estates, thanks to the current federal estate tax exemption of about $15 million per person in 2026, adjusted annually for inflation. If you receive more than $100,000 from a foreign individual or foreign estate, additional U.S. reporting requirements may apply and should be reviewed with a qualified tax advisor.

However, inheriting money as a U.S. expat often brings your country of residence into the picture. Many countries assess an inheritance tax, estate tax or other transfer tax on residents who receive foreign inheritance from the United States or other jurisdictions. Even if no U.S. federal estate tax is due, you or your heirs may still face local tax on inherited assets under foreign inheritance tax rules. Creative Planning’s article Inheriting From the United States While Living Abroad walks through several of these scenarios.

Depending on where you live, your family members may eventually face local taxation on your own U.S.-situs estate if you die as a resident in that country. This can create the potential for double taxation, where the same estate or bequest is effectively taxed in more than one jurisdiction. To help mitigate this risk, it’s important to understand whether an estate tax treaty or estate-and-gift tax treaty exists between the United States and your country of residence.

Why tax treaties matter

A bilateral tax treaty may:

• Reduce or eliminate foreign inheritance tax or estate tax on certain U.S. assets
• Allocate primary taxing rights to either the United States or the foreign country
• Provide tax credits to offset foreign inheritance tax or U.S. transfer tax paid elsewhere

Some countries pro‑rate the portion of inheritance tax payable on U.S. assets, while others may fully eliminate the local tax burden when a tax treaty applies. This can be true even when domestic law in the foreign country appears to impose tax on the full estate or bequest.

A key point: treaty benefits aren’t automatic. The person liable for the tax typically must affirmatively assert the treaty claim and file the correct local and U.S. IRS forms within the required tax-year deadlines. Missing a filing date or failing to document the treaty position can result in waived rights, leaving you with a higher tax liability than necessary.

Because treaty articles, definitions of “resident” or “citizen,” and tie‑breaker rules are highly technical, many American expatriates choose to work with advisors who specialize in cross‑border estate planning and expat tax law to help evaluate available tax credits and treaty protections. For an in‑depth treatment of cross‑border issues, see Creative Planning’s Guide to International Estate Planning for Cross-Border Families.

Tip #3 – Understand What You’re Inheriting — and the Related U.S. Reporting Rules

Even when no U.S. estate tax is due, inheriting money as a U.S. expat can trigger a range of U.S. reporting obligations tied to foreign assets, foreign financial assets and foreign inheritance. Knowing exactly what you’re inheriting — and how it’s held — is essential to staying compliant with U.S. tax rules and avoiding penalties. Creative Planning International’s FAQ Inheriting Money as a U.S. Expat: Key Tax and Reporting Questions offers additional detail.

Some of the most common situations U.S. citizens abroad encounter include the following.

Foreign bank and brokerage accounts

If you inherit any foreign bank or brokerage accounts and the combined balance of your foreign financial accounts exceeds $10,000 at any point during the tax year, you must report them to the U.S. Treasury via the FBAR (FinCEN Form 114). This rule applies whether the account is in your own name or you have signature authority. It generally covers:

• Foreign bank accounts
• Foreign investment or securities accounts
• Certain foreign pensions and other financial accounts

The FBAR is an information return, not an income tax form, but failure to file can result in significant penalties. For a broader overview of expat‑specific forms, see U.S. Tax Forms Every Expat Should Know.

Foreign financial assets and Form 8938

If your total foreign financial assets exceed certain thresholds — for many expats, $200,000 at year-end or $300,000 at any time during the year for single filers living abroad — you may need to file Form 8938 (Statement of Specified Foreign Financial Assets) with your U.S. income tax return. These thresholds are higher if you file jointly with a U.S. citizen spouse.

Foreign financial assets for Form 8938 purposes can include:

• Foreign bank and brokerage accounts
• Foreign partnership interests and certain foreign corporate shares
• Interests in a foreign trust or foreign estate
• Some foreign retirement accounts and life‑insurance policies

Again, Form 8938 is primarily about disclosure and helping the IRS track foreign assets; filing doesn’t necessarily mean you owe additional U.S. income tax on the inherited asset.

Large foreign gifts or inheritance 

If you receive more than $100,000 from a foreign individual or foreign estate during a calendar year, you may need to report the transfer on Form 3520, which is another IRS form focused on foreign inheritance and gift reporting.Form 3520 reports the receipt of the gift, bequest or inheritance — not whether you owe U.S. gift tax or income tax on the transfer (in most cases you don’t).

Special rules also apply if you receive distributions from, or become the owner of, a foreign trust as part of an inheritance. In those cases, additional IRS forms may be required, and it’s easy to run afoul of complex foreign trust and transfer‑tax rules without professional guidance.

Other planning considerations

A few additional points U.S. expats should keep in mind include:

• Roth IRA and retirement accounts – While Roth IRA inheritances from U.S. estates are often income tax‑free in the United States, your country of residence may treat distributions differently for local tax purposes.
• Capital gains and local rules – Some countries impose capital gains tax on the recipient when inherited assets are later sold, even if there was no inheritance tax at the time of death.
• Citizen spouse and mixed‑nationality couples – If you’re married to a non‑U.S. citizen spouse, gift tax, estate tax and transfer tax rules can be significantly more complex, and additional planning may be needed to avoid unintended tax exposure for both partners.

Filing these various IRS forms doesn’t automatically create tax liability in the United States, but missing a required form can result in substantial penalties. For that reason, American citizens living abroad should carefully inventory their inherited assets, understand how they fit into U.S. thresholds and foreign inheritance tax rules, and seek guidance before the end of the tax year in which the inheritance occurs. If you’re just beginning your international planning, Getting Started With Estate Planning for U.S. Expats from Creative Planning International is a helpful companion resource.

How Creative Planning International Can Help

If you’re inheriting money as a U.S. expat and need help navigating the challenges of a recent U.S. inheritance while living abroad, Creative Planning International is here to help. We work with Americans abroad and cross-border families to help them understand foreign inheritance tax risks, avoid double taxation and make informed financial planning decisions about their inherited assets.

Our team understands the complex interaction of U.S. estate tax, inheritance tax regimes in other countries, estate tax treaties and the U.S. reporting rules for foreign assets and financial accounts. We coordinate with local advisors when appropriate, help you evaluate tax treaty provisions and potential tax credits, and design strategies to help minimize transfer tax exposure while integrating your inheritance into your broader wealth, retirement and estate planning goals.

For more information, or to discuss your specific situation, request a meeting with a member of our  Creative Planning International team.