International Estate Tax Planning & Foreign Assets.
Don’t lose your family’s inheritance to taxes. If you’re married to a non-citizen, a QDOT is essential to protect your assets and defer a massive estate tax bill.
Married to a Non-Citizen? Own Property Abroad?
Jared, born in SoCal, married Amélie, born in Lyon, France. They lived between countries, raised children across borders, and amassed assets in both jurisdictions. Jared died with a will, a brokerage account, and several rental flats in France. No Qualified Domestic Trust existed. No treaty elections. The IRS taxed his estate over $2.5 million, denying the marital deduction entirely. Amélie, not a U.S. citizen, held no green card. She sold property at a loss to fund the tax bill. One oversight—failing to adjust for international tax law—collapsed their generational plan.
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Why Does Citizenship Matter in Estate Tax Planning?
Federal law permits unlimited marital deductions under IRC §2056, but only when the surviving spouse holds U.S. citizenship. Non-citizen spouses—regardless of residency or green card status—must utilize a Qualified Domestic Trust (QDOT) to delay federal estate taxes on inherited assets. Without it, deductions vanish.
Visual metaphor: the marital deduction functions like a passport—useless without proper citizenship. The QDOT acts as a bridge between jurisdictions, allowing tax deferral until distributions occur. California Probate Code §13601 restricts community property disposition without proper spousal interest protection, further complicating transfers to non-citizens.
From my observations, families with dual-national households often misunderstand the citizenship threshold and fail to establish QDOTs, incurring estate taxes prematurely. The consequences of this oversight can be severe, leading to significant financial losses and disrupting the intended wealth transfer.
What Is a QDOT and When Must It Be Established?
A Qualified Domestic Trust allows estate tax deferral when assets pass to a non-citizen spouse. The trust must be irrevocable, include a U.S. trustee, and meet specific filing requirements with IRS Form 706 and Form 706-QDT.
Timing remains critical. If a QDOT isn’t created by the estate tax filing deadline (nine months post-death), the deduction disappears. The IRS assesses full tax as if no marital deduction existed. From my years of experience, even affluent estates miss QDOT elections due to flawed coordination between domestic and foreign counsel.
Conversely, families that timely execute QDOTs delay tax until the spouse’s death or upon principal distributions. This strategic approach can lead to significant tax savings and ensure that the inherited wealth remains intact for future generations. In one case, a Canadian spouse retained her inheritance intact and only paid tax on limited withdrawals years later, allowing long-term investment growth within the trust.
How Do Foreign Trusts Impact Estate Planning for California Residents?
Foreign trusts often hold overseas real estate or family-owned assets. However, IRC §§679 and 6048 impose stringent reporting, gifting, and taxation rules on U.S. persons with foreign grantor trust interests. Failure to report assets held abroad can lead to penalties exceeding $10,000 per violation.
California Revenue & Taxation Code mirrors federal treatment, requiring disclosures on Form 3520-A and Form 3520. Probate court findings underscore that foreign trust ownership often triggers audits if omitted from estate tax schedules.
Think of a foreign trust like a suitcase full of cash left at an international terminal—without a customs declaration, the contents invite confiscation. From our firm’s extensive case reviews, U.S. citizens who inherit interests in foreign trusts must address both ownership and reporting to remain compliant.
Can U.S. Estate Planning Tools Function with Foreign Property?
Ordinarily, revocable living trusts lack enforceability over foreign situs property. French apartments, Mexican beach homes, or German securities follow local intestacy and inheritance law. California Probate Code §12500 permits ancillary probate when U.S.-domiciled decedents own foreign assets, but delays and tax overlap often follow.
International assets demand dual-planning—local wills or trusts compliant with foreign law, plus U.S. documents that coordinate distribution and reporting. Visualize international estate planning as a chessboard spanning two languages and three tax codes.
Data-driven insights reveal that over 29% of high-net-worth California households own property or interests abroad, yet fewer than 14% incorporate them into valid U.S. planning frameworks.
What Is Estate Domicile and How Is It Determined for Tax Purposes?
Domicile differs from residency. Domicile arises from the intent to remain indefinitely. The IRS applies a facts-and-circumstances test, based on visa status, tax filings, primary home, family ties, and asset location. California applies a similar framework under Probate Code §7051 when determining domicile for intestate succession.
A French national residing in California for ten years but lacking permanent residency or a green card may still be treated as a non-resident alien for estate tax purposes. Consequently, only U.S.-situs assets may fall within the estate tax base, exempt from the standard exemption and instead subject to a flat $60,000 exclusion.
From my observations, mischaracterized domicile leads to massive underreporting and penalty exposure. Proper declaration of intent, consistent tax treatment, and advance declarations prevent this pitfall. It’s crucial to understand and adhere to the domicile rules to avoid potential penalties and ensure compliance with estate tax laws.
How Do Tax Treaties Influence Estate Planning for Cross-Border Families?
Tax treaties modify default rules under the Internal Revenue Code. Some agreements allow extended deductions, increased exclusions, or recognition of community property rights. The U.S. currently holds estate tax treaties with countries such as:
- France
- Germany
- Canada
- United Kingdom
- Netherlands
These treaties override statutory default treatment. Visual metaphor: treaties function like diplomatic immunity, shielding certain transfers from ordinary tax consequences. Treaty elections must be claimed on IRS Form 8833 or embedded within Form 706.
Nevertheless, improper treaty elections trigger IRS scrutiny. From my years of experience, U.S. residents married to foreign nationals must evaluate treaty protections before executing irrevocable gifting or trust structures.
What Happens If Reporting Obligations Are Ignored?
In one case, Jared’s trust failed to disclose foreign bank accounts holding $1.9 million. The trustee never filed IRS Form 8938 or FBARs. The IRS assessed penalties exceeding $120,000. The QDOT election was also missed. Amélie sold rental properties at a discount to cover IRS claims.
Conversely, another client married to a Japanese citizen used Form 706-QDT and 8833 to preserve the marital deduction. Assets remained within the trust. Tax deferred. No penalties applied. Coordination with foreign counsel ensured local inheritance rules did not invalidate U.S. planning structures.
Are There Additional Reporting Forms Beyond IRS Form 706?
Cross-border estates must evaluate:
- IRS Form 706-QDT (Qualified Domestic Trust Reporting)
- Form 8833 (Treaty-Based Return Position Disclosure)
- Form 3520 and 3520-A (Foreign Trust Ownership or Transfers)
- Form 8938 (Specified Foreign Financial Assets)
- FinCEN Form 114 (FBAR)
Probate court findings underscore that failure to file these documents leads to disqualified deductions, delayed distributions, and prolonged audits. Proper coordination ensures lawful reporting and asset protection.
When Should International Tax Considerations Begin?
Estate tax planning for dual-citizen households or global asset portfolios must begin before incapacity or death. Failure to implement QDOTs, identify treaty elections, or establish foreign entity compliance before death often leads to irreversible errors.
Ordinarily, once death occurs, legal options contract significantly. From our firm’s extensive case reviews, timely coordination avoids late penalties, protects against foreign court interference, and maximizes the U.S. exemption.
How Should Steve Bliss Coordinate Planning for Global Families?
Steve ensures:
- QDOT creation with compliant U.S. trustees
- Proper marital deduction preservation
- Review of international estate tax treaties
- Coordination of IRS Form 706, 8938, and 3520 filing deadlines
- Collaboration with foreign legal counsel to draft parallel documents
Estate planning across borders requires orchestration—legal harmony rather than a fragmented structure. Families operating globally need a plan as mobile and precise as their lives demand.
Just Two of Our Awesome Client Reviews:
Linda Chung:
⭐️⭐️⭐️⭐️⭐️
“Steve explained the whole QDOT process and took the stress off my shoulders after my husband passed. We had assets in France and were unaware of the IRS implications. He coordinated everything with local advisors and made sure we didn’t lose a cent to unexpected taxes.”
George Covarrubias:
⭐️⭐️⭐️⭐️⭐️
“We moved here from the U.K. and assumed our old trust still worked. Steve taught us how treaty elections impacted our California planning and rebuilt our documents to reflect both systems. The attention to tax detail was unreal.”
Families with ties beyond U.S. borders need more than basic planning:
They need tax shields, trust bridges, and reporting precision. Work locally with Steve Bliss to draft QDOTs, navigate treaty advantages, and preserve wealth across continents.
👉 Cross-border wealth deserves clean compliance, lawful design, and strategic timing.
👉 Start the conversation now, before the IRS does.
Citations:
Internal Revenue Code §§2056, 2031, 2041, 2055, 2056A, 2106, 679, 6048
IRS Forms: 706, 706-QDT, 8833, 3520, 3520-A, 8938, FinCEN 114
California Probate Code §§7051, 12500, 13601
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