Summary
- The United States taxes the worldwide estate of a citizen or domiciliary: foreign real estate, accounts, pensions, policies and company shares are all inside it.
- Who inherits them is decided abroad, by habitual residence in the European Union unless the will elects the law of a nationality, and against a reserved share for children.
- The trust is recognized in some of these countries, ignored in others and taxed punitively in several.
- Relief from double taxation at death runs primarily through the estate tax conventions; the statutory credit is the fallback where none exists.
- During life, foreign funds, pensions, policies and companies carry current United States tax and information returns whose penalties are measured against value.
Part I. The United States taxes the worldwide estate
For a citizen or a domiciliary the federal gross estate includes property wherever situated. Domicile is presence combined with the intention to remain, not the day-count test that governs income tax residence, so a long-term green card holder and a naturalized citizen living abroad are both inside the worldwide base. A foreign policy on the decedent’s own life is included where incidents of ownership were retained (section 2042), the reverse of the result for a nonresident who is not a citizen. The gift tax also reaches gifts of property wherever situated, and the Internal Revenue Code allows no credit for a foreign gift tax; relief exists only under the conventions that cover gifts. No state credits a foreign death tax.
Part II. Which law decides who inherits
Administration is local everywhere: a New York probate does not move a Munich apartment, which requires a German Nachlassgericht, and French assets require a notaire. For deaths on or after August 17, 2015, Regulation (EU) No 650/2012 decides which national law applies in every Member State except Denmark and Ireland. The default is the law of the deceased’s habitual residence at death, applied to the whole estate wherever the assets lie. Article 22 permits an election of the law of a State of nationality, and a United States national must name a state, the law of New York rather than the law of the United States. A will made before August 17, 2015 under a law the testator could have chosen is deemed to contain the election.
The election matters because of the reserved share. France reserves one half of the estate for one child, two thirds for two and three quarters for three or more; Germany gives descendants and the spouse a Pflichtteil equal to half the intestate share, as a money claim against the heirs; Italy, Spain, Portugal, Belgium, Austria, the Netherlands and Switzerland each protect a comparable minimum. Because no American state other than Louisiana reserves a share for children, an election of American law displaces the reserve in principle. Two limits are real. A court may refuse the chosen law as manifestly contrary to public policy, as the Bundesgerichtshof did in 2022 for a testator with fifty years of residence in Germany. And France’s compensatory levy (Article 913, paragraph 3 of the Code civil) lets a child take from French assets where the applicable foreign law contains no protective mechanism, which American state law does not supply. None of this binds an American court: United States real property descends under the law of its situs.
Part III. One will, or several
Formal validity is the solved part. Under the 1961 Hague Convention on the form of testamentary dispositions, to which some forty states are party, including Germany, France, the United Kingdom, Switzerland and Austria, a will is formally valid if its form satisfies the law of the place of execution, of a nationality, of a domicile or of a habitual residence. The architecture is the real decision. A single worldwide will keeps one coherent scheme but produces one original that must queue through each forum in sequence; coordinated situs wills, one per country in local form and language, run in parallel and satisfy notaries and land registries directly, at the cost of exact coordination. Foreign real estate is the strongest argument for a local will. Whichever is chosen, the general revocation clause is the most destructive sentence in this field: a later American will opening “I revoke all wills and codicils heretofore made by me” silently destroys the German or French will nobody mentioned to the drafter.
Part IV. The trust does not cross into civil law intact
Civil law conceives ownership as unitary and recognizes only a closed list of real rights, so the division between a trustee’s legal title and a beneficiary’s equitable interest has no native place in it. The Hague Convention of July 1, 1985 supplies a bridge for the countries that ratified it, among them Italy, the Netherlands, Luxembourg and Switzerland; France signed in 1991 and never ratified, and Germany, Spain, Austria, Belgium and Portugal never signed. Recognition answers only whether the structure is seen, and taxation is usually harsher. France disregards the trust and taxes transfers to beneficiaries at 45 or 60 percent. Germany taxes the funding, the distributions and the dissolution in tax class III at 30 to 50 percent whatever the family relationship, although the Bundesfinanzhof treats the trust as transparent where the settlor keeps comprehensive control. Italy taxes at distribution; the Netherlands and Belgium attribute the assets to the settlor or the beneficiary. Funding is also a gift for the reserved-share computation, without time limit in France, Italy and Spain and on a ten-year sliding scale in Germany.
Assets in civil-law countries therefore generally do not belong in a United States trust. Local instruments do the same work in a form the local system can execute: the foundation, the usufruct, the succession contract and, in France, the assurance-vie. Each carries an American consequence to be checked first. A retained usufruct is a retained life estate that pulls the property back into the gross estate (section 2036), and an assurance-vie is rarely life insurance under section 7702.
Part V. Double taxation at death, and the relief the conventions give
The United States is party to fourteen bilateral estate tax conventions, and for most families with European assets the convention, not the statutory credit, is the operative instrument. The modern conventions with the Netherlands, the United Kingdom, France, Germany, Austria and Denmark fix a single domicile through a tie-breaker of permanent home, centre of vital interests, habitual abode and nationality; confine the other country to real property and business property of a permanent establishment; reserve everything else to the domicile country; and oblige the domicile country to credit the other’s tax, capped at its own tax on that property. The saving clause preserves the American right to tax citizens, but the credit articles apply notwithstanding it, so a citizen domiciled in Germany, France or the United Kingdom is credited for the foreign tax on the entire non-American estate, which the statute would not allow. The older conventions with Italy and Switzerland allocate by agreed situs rules instead.
Section 2014 is the fallback. It credits a foreign death tax on property situated in that country under American situs principles, capped at the lesser of the foreign tax and the federal tax on that property, and it is the only relief where no convention exists, as with Belgium, Spain, Portugal and Luxembourg. It is computed on Schedule P of Form 706 and proved on Form 706-CE within four years of filing; the conventions carry longer claim periods of their own.
| Country | Children’s reserved share | Status of a United States trust | Estate tax convention |
|---|---|---|---|
| France | One half, two thirds or three quarters, by number of children | Not ratified; the 2011 regime looks through the trust | Yes, 1978; gifts covered |
| Germany | Half the intestate share, as a money claim | Not a party; taxed in class III | Yes, 1980; gifts covered |
| United Kingdom | None; family provision instead | Party; trusts are native | Yes, 1978; gifts covered |
| Switzerland | Half the intestate share since 2023 | Party since 2007; Circular No. 30 | Yes, 1951; a situs convention |
| Italy | One half for one child, two thirds for more | Party since 1992; taxed on distribution | Yes, 1955; a situs convention |
| Austria | Half the intestate share | Not a party; the Privatstiftung is used | Yes, 1982 |
| Netherlands | Half the intestate share, as a money claim | Party since 1996; attributed to the settlor | Yes, 1969 |
| Spain | Two thirds; one quarter in Catalonia | Not a party; looked through | None |
| Belgium | One half for all descendants together | Recognized; Cayman tax applies | None |
Part VI. Tax and reporting while the assets are held
The estate tax is not the whole of it. Foreign mutual funds, SICAVs and unit trusts are passive foreign investment companies, taxed by default under section 1291 as ordinary income with an interest charge and reported on a Form 8621 for each fund. A funded foreign occupational pension is generally a nonexempt employees’ trust under section 402(b), so employer contributions are taxed as they vest and a highly compensated employee is taxed annually on the plan’s earnings long before anything is paid out, unless the treaty’s pension article gives relief. A foreign life insurance policy is respected only if it meets the definition in section 7702, which foreign carriers frequently do not satisfy, and a policy that fails is taxed each year on its inside build-up. A foreign company becomes a controlled foreign corporation once American shareholders holding 10 percent or more own more than half of it, and its owner is then taxed currently on Subpart F income and, for years beginning after December 31, 2025, on net CFC tested income.
| Filing | What triggers it | Threshold or note |
|---|---|---|
| FBAR, FinCEN Form 114 | Foreign accounts, owned or merely signed for | Above $10,000 in aggregate at any point in the year |
| Form 8938 | Foreign accounts, securities and interests in foreign entities and trusts | From $50,000; higher for joint filers and residents abroad |
| Form 3520 | Foreign trust transfers, ownership and distributions; gifts from abroad | Above $100,000 from an individual; $20,573 in 2026 from a company |
| Form 3520-A | Foreign trust with an American owner | Due March 15; the owner substitutes if the trustee will not file |
| Form 8621 | Each foreign fund treated as a PFIC | One form per fund; section 1291 by default |
| Form 5471 | A 10 percent interest in a foreign corporation | From $10,000 a year; holds the whole return open |
| Form 720 | Premiums paid to a foreign insurer | 1 percent life and annuity, 4 percent casualty |
| Form 706, Schedule P | Credit for foreign death tax, proved on Form 706-CE | Within four years of filing; treaty periods run longer |
Those lifetime regimes, and the elections that change them, are treated on Tax Planning with non-US Assets.
Part VII. Practical steps
- Map the estate by country first. Every country in which assets sit, the type of asset, the local process and where the heirs live. The architecture follows the map.
- Establish nationality, domicile and habitual residence. Every nationality held by the client, the spouse and the children, dormant ones included; these facts decide which law and which convention govern.
- Make the choice of law expressly, and name the state. Repeat it in matching terms in every instrument, and review any will made before August 17, 2015.
- Test the reserved share in the right forum. Where the family will agree, a notarial waiver achieves what no clause can.
- Keep civil-law assets out of the United States trust. Use a local instrument for local property, and check its American consequence before signing.
- Ban the general revocation clause. Each will revokes only within its own scope and names the others; one adviser holds the inventory of every document and each original.
- Run the convention before the credit. Fix treaty domicile first, claim the allocation the convention gives, and compute both credits before filing.
- Bring the holdings into the reporting system now. Inventory the accounts, funds, pensions, policies and companies, and correct past omissions through the established procedures.
Conclusion
An estate with assets in more than one country is not one plan that happens to cross borders. It is several systems that must be made to reach the same result: an American tax base that includes everything, a foreign succession law that decides who inherits, a trust that may or may not be seen, a convention that allocates the tax, and a reporting regime that runs in between. The plan holds where each system has been asked its own question in advance, and fails where one of them is answered by default.
How the firm helps
Ashford International Law PC advises families and their advisers on estates that combine United States and foreign assets: mapping the estate and the applicable succession law country by country, drafting the choice-of-law election and coordinating the American and foreign wills, planning around the reserved share with local counsel, deciding what belongs in a trust and what does not, computing the relief from double taxation at death, and bringing foreign holdings into compliance with the United States reporting rules. The settlement of such an estate after the death, including the United States return, the foreign death tax credits and the proof of heirship abroad, is described on the page on US decedents with non-US assets. Measures that protect such estates against creditors are described on the page on asset protection. Planning for a family that is about to move to Europe is described on the page on asset and tax planning for Americans moving to Western Europe. Clients with assets or expected inheritances in Germany may also visit GermanInheritance.com.
This page is intended for general educational purposes and does not constitute legal or tax advice, nor does it create an attorney-client relationship. The matters described depend on the specific facts, the countries and states concerned, and the law in effect at the relevant time. Statuses and figures are stated as of September 2026 and must be confirmed before any decision.