There are many nuances to estate and inheritance taxes for Americans and more for Americans living outside of the United States. While the current federal estate tax levels are extremely high, there are different rules in other countries, and a clear understanding is needed, as reported in the Tax Management International Journal/Bloomberg Tax article, “Americans Living Overseas Need Cross-Border Estate Planning.”
At the very least, expatriates will want to understand the federal estate tax and how it works with state-level taxes and how European taxes work, which are very different than the American model.
The current 2025 federal estate tax exemption is $13.99 million per individual, and estates below this threshold don’t pay federal taxes. The exemption will likely remain at elevated levels in the foreseeable future. Estates exceeding this level are taxed at rates up to 40%. However, most high-net-worth individuals have strategic estate planning to minimize their tax liability. Lifetime gifting, charitable donations and trusts shelter assets and pass wealth on to future generations.
Several states have their estate taxes, which are typically far lower than the federal level. Oregon, Rhode Island and Massachusetts have the lowest exclusions at $2 million or less. New York State's estate tax exclusion is $7.16 million. However, there’s a so-called “cliff tax” if the estate value exceeds the exemption even slightly. In most states, the estate tax ranges from 0.8% to 20%. Your estate planning attorney will know what your state’s exemptions are.
Inheritance taxes are levied only by a few states, including Iowa, Nebraska, Kentucky, Maryland, New Jersey and Pennsylvania. Maryland, known as a corporate haven for its low business taxes, imposes both estate and inheritance taxes. These taxes are based on the value of the inheritance and the relationship to the decedent.
In Europe, U.S. citizens are subject to more inheritance taxes, where exemptions tend to be lower, and rates are far higher than in the U.S. If you live overseas, you’ll need to consider the cost of your exposure to two tax systems. U.S. federal estate taxes apply wherever you live, in or outside of the U.S., and European inheritance taxes are based on where the decedent lived.
Estate planning for expats requires a multi-national approach. Find out if your country has a U.S. Estate and Gift Tax Treaty, which may allow credits to offset taxes paid in one country against those owned in another.
American citizens may gift up to $19,000 per person every year tax-free. Some European countries have a similar situation where lifetime gifting is based on the relationship between the grantor and the recipient.
Trusts recognized in the U.S. may not be recognized in other countries, so be sure the structure works in both the U.S. and your country of residence to avoid unexpected taxes.
The will you created in the U.S. may not be in compliance with another country and could lead to problems in estate administration.
Speak with an experienced estate planning attorney who can help you navigate the estate taxes and estate planning needs for living outside of the U.S. You’ll need to plan strategically to navigate American and your adopted nation’s estate tax structures.
Reference: Tax Management International Journal/Bloomberg Tax (Jan. 28, 2025) “Americans Living Overseas Need Cross-Border Estate Planning”