The United States imposes estate tax on a broader jurisdictional basis than almost any other country in the world. A U.S. citizen or domiciliary is subject to federal estate tax on their worldwide assets — real estate in France, shares in a Singapore subsidiary, a Hong Kong bank account, and private equity fund interests domiciled in the Cayman Islands are all includable in a U.S. decedent’s taxable estate. For a founder who has built a global business, this means that the estate tax exposure is not limited to domestic assets but extends to every asset in every jurisdiction where the founder has invested or conducted operations.

Layered on top of this broad jurisdictional reach are a series of issues that arise when a founder has family members who are not U.S. citizens, beneficiaries who live abroad, or a business structure that involves foreign entities. The non-citizen spouse presents unique challenges because the unlimited marital deduction — one of the most powerful tools in domestic estate planning — is not available for transfers to a spouse who is not a U.S. citizen. Foreign trusts, foreign corporations, and international asset protection structures each carry their own compliance burdens under a web of information reporting rules that impose severe penalties for non-compliance. And for the founder who is so internationally mobile that they consider relinquishing U.S. citizenship entirely, the exit tax under Section 877A of the Internal Revenue Code can be extraordinarily punishing.

This article provides a comprehensive overview of the international estate planning landscape for U.S. founders — covering the scope of U.S. estate tax jurisdiction, planning for non-citizen spouses, the role of estate tax treaties, inbound and outbound planning structures, the treatment of non-U.S. beneficiaries, and the consequences of renouncing citizenship.

The Scope of U.S. Estate Tax Jurisdiction

For U.S. citizens and domiciliaries, the federal estate tax applies to the fair market value of all property owned at death, wherever located. This worldwide reach is distinct from the approach taken by most other countries, which typically impose estate or inheritance taxes only on assets physically located within their borders. The United States extends this worldwide tax to domiciliaries — non-citizens who have established a domicile in the United States — as well as to citizens. A foreign national who has lived in the United States for many years, acquired a green card, and established a permanent home here is almost certainly a U.S. domiciliary subject to estate tax on their worldwide assets, even if they have never naturalized.

Non-resident aliens — foreign nationals who are neither citizens nor domiciliaries of the United States — are subject to U.S. estate tax only on their U.S.-situs assets. The definition of U.S.-situs assets for estate tax purposes is broader than many foreign investors expect. It includes real property physically located in the United States, shares of stock issued by U.S. corporations (regardless of where the certificate is held or where the shareholder resides), debt obligations of U.S. persons or entities (subject to certain exceptions for portfolio interest), and certain other property with a nexus to the United States. Notably, the federal estate tax exemption available to non-resident aliens is only $60,000 — a tiny fraction of the $13.99 million exemption available to U.S. citizens and domiciliaries in 2025. For a foreign founder who holds shares in a U.S. startup or who has purchased U.S. real estate, this means that significant U.S. estate tax can arise at death even without any U.S. citizenship or residence.

Non-Citizen Spouses and the Qualified Domestic Trust

One of the most common international estate planning challenges encountered by U.S. founders is the non-citizen spouse. The unlimited marital deduction under Section 2056 of the Internal Revenue Code allows a U.S. citizen decedent to transfer an unlimited amount of assets to a surviving spouse free of estate tax, effectively deferring all estate tax until the death of the surviving spouse. This deduction is available only when the surviving spouse is a U.S. citizen. When the surviving spouse is not a U.S. citizen — regardless of how long they have lived in the United States, regardless of their green card status — the unlimited marital deduction is unavailable for direct transfers.

Congress enacted the Qualified Domestic Trust rules, codified at Section 2056A, to provide a mechanism for deferring (not eliminating) estate tax on assets passing to a non-citizen surviving spouse. A QDOT is a trust established under the will or revocable trust of the deceased U.S. spouse that holds assets for the benefit of the surviving non-citizen spouse. Assets passing to the QDOT qualify for the marital deduction, and estate tax on those assets is deferred until one of two triggering events occurs: a distribution of principal from the QDOT (distributions of income are not taxable) or the death of the surviving spouse. At that point, the estate tax is calculated as if the assets had been included in the estate of the first spouse to die, using the first spouse’s estate tax rates.

The QDOT must satisfy specific structural requirements. At least one trustee must be a U.S. citizen or domestic corporation. For QDOTs holding more than $2 million in assets, an additional security requirement applies: either a domestic bank must serve as trustee, or the individual U.S. trustee must post a bond or letter of credit in favor of the IRS equal to 65% of the QDOT’s assets. These requirements are designed to ensure that the IRS can collect the deferred estate tax when it ultimately becomes due, and cannot be satisfied by naming only a non-citizen trustee or by siting the trust abroad.

A founder who is married to a non-citizen spouse should not wait until death to address this issue. Lifetime planning options include encouraging the spouse to naturalize (which eliminates the QDOT requirement, since a surviving spouse who is a U.S. citizen at the time of the first spouse’s death qualifies for the marital deduction even if she was not a citizen when the QDOT was established), making annual gifts within the increased annual exclusion for non-citizen spouses ($185,000 in 2024, indexed for inflation), and funding the spouse’s estate with assets using the gift tax annual exclusion and lifetime exemption to reduce the amount that will pass through the estate at death.

Estate Tax Treaties and Their Strategic Importance

The United States has entered into estate and gift tax treaties with a number of countries, including the United Kingdom, France, Germany, the Netherlands, Italy, Japan, Australia, Canada, Finland, Greece, Ireland, Switzerland, South Africa, and Denmark, among others. These treaties serve several important functions in international estate planning. They can provide credits for estate or inheritance taxes paid to a foreign country on assets also subject to U.S. estate tax, thereby reducing or eliminating double taxation. They can modify the situs rules that otherwise determine whether an asset is subject to U.S. estate tax as a U.S.-situs asset. And in some cases — most notably the treaty with the United Kingdom — they extend a proportionate share of the U.S. exemption to non-domiciliary decedents who hold U.S. assets.

The practical importance of treaty analysis varies significantly depending on the nationality of the founder, the nature and location of the assets, and the tax laws of the foreign jurisdiction. A French citizen who dies holding significant U.S. assets may be able to claim a credit under the U.S.-France estate tax treaty for French inheritance tax paid on the same assets, reducing or eliminating the net U.S. estate tax liability. A German founder with a U.S. business partner who is a U.S. citizen and holds German real estate may find that the U.S.-Germany treaty affects how the German assets are treated in the U.S. estate. Treaty analysis is not optional for internationally mobile founders — it is an essential component of competent estate planning.

It is equally important to understand what treaty benefits do not cover. Estate tax treaties do not generally modify the U.S. income tax treatment of foreign assets owned by U.S. persons, and they do not prevent double taxation in all cases — some countries impose inheritance taxes at the beneficiary level rather than estate taxes at the decedent level, and not all of those taxes are creditable against the U.S. estate tax. Founders with meaningful cross-border estate planning issues should engage both U.S. estate planning counsel and qualified foreign counsel in the relevant jurisdictions to ensure that the treaty analysis is complete and accurate.

Inbound Structures: Non-U.S. Persons Holding U.S. Assets

Foreign nationals who are not U.S. domiciliaries but who hold U.S. assets face a significant U.S. estate tax exposure because of the low $60,000 exemption available to non-resident aliens. The standard planning technique for non-resident alien investors who want to hold U.S. real estate or U.S. company stock is to interpose a foreign corporation between the investor and the U.S. asset. If a non-resident alien holds shares in a foreign holding company that in turn owns U.S. real estate or U.S. company stock, the investor’s estate holds foreign corporate shares (which are not U.S.-situs assets for estate tax purposes) rather than the underlying U.S. assets directly. At death, only the foreign corporate shares are in the estate, and since those shares are not U.S.-situs property, they are not subject to U.S. estate tax.

This structure must be weighed carefully against its income tax costs. The Foreign Investment in Real Property Tax Act (FIRPTA) imposes withholding obligations on the sale of U.S. real property by foreign persons, and a foreign corporation holding U.S. real estate does not avoid FIRPTA. The use of a foreign corporation to hold U.S. stocks may also create Branch Profits Tax exposure on earnings repatriated from a U.S. subsidiary to a foreign parent. And depending on the income tax treaty network available to the foreign investor, using a foreign holding company may forfeit treaty benefits that would otherwise reduce U.S. withholding taxes on dividends and interest. The estate tax savings must be evaluated in light of these income tax costs, and the optimal structure depends heavily on the investor’s nationality, the nature of the U.S. investment, and the anticipated holding period.

Outbound Structures: U.S. Persons with Foreign Assets

For U.S. citizens and domiciliaries with foreign assets, the planning challenge runs in the opposite direction: all of those foreign assets are already in the U.S. estate, so the goal is to manage the overall estate efficiently while complying with U.S. income tax rules that apply to U.S. persons’ ownership of foreign entities and accounts. The principal tools available are foreign trusts, foreign corporations, and coordination with foreign country estate and succession rules.

Foreign trusts are subject to extensive information reporting obligations under Sections 6048 and 6677 of the Internal Revenue Code, and a U.S. person who is treated as the owner of a foreign trust for grantor trust purposes must report on Form 3520-A annually. A U.S. beneficiary who receives a distribution from a foreign non-grantor trust must report that distribution on Form 3520. The penalties for failure to file these forms are severe — 35% of the value of the property transferred to or distributed from the trust in some cases. These compliance burdens do not make foreign trusts unusable, but they mean that a U.S. founder who holds assets in a foreign trust structure must have robust compliance processes in place.

Foreign corporations owned by U.S. persons are subject to the Controlled Foreign Corporation rules of Sections 951 through 965, the Global Intangible Low-Taxed Income provisions of Section 951A (known as GILTI), the Passive Foreign Investment Company rules of Sections 1291 through 1298, and the Base Erosion and Anti-Abuse Tax provisions. Each of these regimes can cause the U.S. shareholder to recognize income currently on earnings that have not been distributed, on a basis that is far less favorable than the treatment of comparable domestic income. A U.S. founder who holds interests in a foreign operating subsidiary through a foreign holding company must structure the ownership carefully to minimize the application of these anti-deferral regimes while also managing the estate tax consequences of the structure.

Founders with Foreign Operations: Intellectual Property and Subsidiary Structures

A U.S. founder whose company has meaningful foreign operations will typically hold interests in foreign subsidiaries, whether directly or through a domestic parent. Those foreign subsidiary interests are included in the U.S. estate at fair market value, and for a successful international business, that value can be substantial. Planning for founders in this situation involves a combination of entity structure (using domestic entities or Subchapter S corporations where appropriate to avoid corporate-level taxes on sale), lifetime gifting of interests in entities that hold foreign assets (to remove future appreciation from the estate), and valuation discount planning where interests in privately held entities are eligible for minority or marketability discounts.

Intellectual property presents a particularly complex international planning challenge. A U.S.-owned patent, trade secret, or software platform that generates royalty income from foreign licensees produces U.S. taxable income to the U.S. owner and is included in the U.S. estate. Strategies for managing IP in an international context include contributing IP to a foreign subsidiary (subject to Section 367 and the built-in gain rules), entering into cost-sharing arrangements that allow foreign subsidiaries to participate in the development of future IP (subject to the detailed cost-sharing regulations under Treasury Regulation Section 1.482-7), and coordinating with foreign country IP box regimes that offer preferential income tax rates on royalty income. Each of these strategies requires careful coordination between U.S. international tax counsel and foreign counsel in each relevant jurisdiction.

Non-U.S. Beneficiaries: Withholding and Compliance Obligations

A U.S. trust with non-U.S. beneficiaries faces withholding tax obligations whenever it distributes income to those beneficiaries. Under Sections 1441 and 1442 of the Internal Revenue Code, U.S.-source income paid to foreign persons is subject to a 30% withholding tax (reduced by applicable income tax treaties). A trust that distributes dividend income, interest income, or gains to a non-U.S. beneficiary must withhold at the applicable rate and remit the withholding to the IRS on Form 1042. Failure to withhold makes the trustee personally liable for the tax.

The classification of a trust as domestic or foreign for U.S. tax purposes also affects the withholding analysis. A foreign trust (as defined under the “court test” and “control test” of Section 7701) that receives U.S.-source income is generally subject to withholding at the 30% rate on that income. If a U.S. founder creates a trust that is inadvertently classified as a foreign trust because the trustee is a non-U.S. person or because the trust is subject to the control of non-U.S. persons, the compliance consequences can be severe. Ensuring that trusts intended to be domestic trusts are properly structured with U.S. trustees and U.S. administrative control is an essential drafting requirement whenever non-U.S. persons are involved.

Renunciation of U.S. Citizenship and the Exit Tax

For some high-net-worth founders whose international connections are extensive and whose ties to the United States have become attenuated, renouncing U.S. citizenship may appear to be an attractive solution to the burden of worldwide U.S. income and estate taxation. The appeal is real: once U.S. citizenship is relinquished and U.S. domicile is abandoned, the former citizen’s estate is subject to U.S. estate tax only on U.S.-situs assets, and the ongoing income tax obligations based on worldwide income also terminate. For a founder with a predominantly non-U.S. asset base and non-U.S. family members, the lifetime income tax and estate tax savings from expatriation can be very large.

However, the U.S. exit tax under Section 877A of the Internal Revenue Code imposes a punishing cost on renunciation for founders with significant unrealized gains. Section 877A applies to “covered expatriates” — generally, U.S. citizens or long-term permanent residents who renounce citizenship or abandon their green card and who meet any of three thresholds: (1) a net income tax liability of more than $201,000 (indexed for 2024) averaged over the five years preceding expatriation, (2) net worth of $2 million or more, or (3) failure to certify five years of U.S. tax compliance. A covered expatriate is treated for U.S. income tax purposes as having sold all of their property on the day before expatriation for fair market value. The resulting gain is recognized and taxed at applicable capital gains rates, subject to an exclusion of $866,000 (indexed for 2024) for all unrealized gains.

For a founder who holds tens of millions of dollars in appreciated company stock, the Section 877A mark-to-market tax can represent an enormous immediate tax bill — essentially the founders’ entire deferred gain is accelerated and taxed in a single year, without the proceeds of an actual sale to fund the tax liability. Special rules apply to deferred compensation items, interests in non-grantor trusts, and specified tax-deferred accounts; each of these categories has its own treatment under the exit tax rules. The complexity and cost of Section 877A make renunciation an impractical option for most founders with significant U.S.-source wealth, and it should be approached, if at all, only after exhaustive planning to minimize the exit tax and to ensure that the post-expatriation structure achieves the intended tax benefits.

Practical Guidance: Identifying International Issues Early

The most common error in international estate planning is identifying the issues too late — after structures have been established, assets have been transferred, or key decisions have already been made in ways that are costly to unwind. A U.S. founder who creates a foreign trust without understanding the Section 679 grantor trust rules may be surprised to learn that the trust is taxed to the founder rather than providing the intended deferral. A foreign national who acquires a green card without understanding the worldwide estate tax consequences of domicile may find, years later, that an enormous estate tax liability has accumulated on foreign assets that were never intended to be subject to U.S. tax.

The solution is to engage U.S. international tax and estate planning counsel at the earliest stage of any cross-border transaction, entity formation, or family planning decision. Treaty analysis should be part of the initial planning, not an afterthought. Compliance obligations — Form 3520, Form 3520-A, FBAR (FinCEN Form 114), Form 8938, Form 5471, and Form 8621, among others — should be mapped out and assigned to qualified professionals who will ensure that annual filings are timely and accurate. Foreign counsel in each relevant jurisdiction should be engaged to identify any foreign estate, gift, or inheritance tax obligations that U.S. counsel may not be aware of. The coordination among domestic and foreign advisors is itself a project management challenge, and founders with truly complex international structures should consider designating a lead advisor who has responsibility for ensuring that the full picture is being addressed.

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