Ashford International Law P.C.

Summary

1. The United States taxes the person who gives. Germany, France and most of Europe tax the person who receives. A single transatlantic gift therefore meets two taxes with two taxpayers, and neither system was designed with the other in mind.
2. A donor who is neither a United States citizen nor domiciled there pays no United States gift tax on intangible property at all, however large the gift. Only United States real estate and tangible property in the United States are reached.
3. An American donor is taxed on worldwide gifts against a $15,000,000 lifetime exclusion in 2026 and a $19,000 annual exclusion per recipient, with direct payments of tuition and medical costs excluded without limit.
4. Receiving is not taxed but it is reported. A United States person who receives more than $100,000 from a foreign individual or estate files Form 3520, and the penalty for not doing so is 5 percent of the gift for each month, to a maximum of 25 percent.
5. Basis is where cross-border gifting most often goes wrong. A gift carries the donor’s basis; an inheritance is adjusted to value at death, including where the decedent was a nonresident and no United States tax was paid.

Part I. Two systems, one transaction

American gift tax is a tax on the transferor. The donor computes it, the donor reports it on Form 709 or Form 709-NA, and the donor pays it. European inheritance and gift taxes are, with few exceptions, taxes on the acquirer: each recipient has his own allowance according to his relationship to the transferor, and his own rate band.

The practical consequences of that difference show up immediately. An American parent giving to a German child faces United States gift tax on the transfer and German gift tax on the receipt, with no American deduction for the German tax and a German credit that is narrower than it first appears. A German parent giving American securities to an American child faces no United States gift tax at all, and full German gift tax. The planning question is rarely how to reduce one tax; it is which system to place the transaction in.

Part II. The United States donor

A United States citizen, and a non-citizen domiciled in the United States, is taxed on gifts of property wherever situated. The reliefs are familiar and it is worth being precise about them.

The annual exclusion is $19,000 per recipient in 2026 (section 2503(b)), and it is per recipient rather than per donor, so a married couple can reach twice the figure for each child. The lifetime exclusion is $15,000,000 in 2026 (section 2010(c)(3), as amended by Public Law 119-21 of July 4, 2025), indexed from 2027. Direct payments of tuition to an educational institution and of medical costs to a provider are excluded without any limit and without using the annual exclusion, but only if paid directly to the institution or the provider; reimbursing the student or the patient does not qualify (section 2503(e)).

Gift splitting, by which a gift made by one spouse is treated as made half by each, is available only if each spouse is a citizen or a resident of the United States at the time of the gift (section 2513(a)(1)). “Resident” here means domiciliary. A couple in which one spouse is a non-domiciliary cannot split, and each must file separately. Gifts to a spouse who is not a United States citizen are limited to $194,000 in 2026 (section 2523(i)(2)); the unlimited spousal deduction is unavailable.

Foreign tax paid on the same gift is not creditable against United States gift tax under the Code. Relief exists only where a convention covers gifts, which seven of the fifteen estate tax conventions do.

Part III. The nonresident donor, and why this is the largest opportunity in the field

A donor who is neither a United States citizen nor domiciled in the United States is subject to United States gift tax only on property situated in the United States, and not at all on intangible property (sections 2501(a)(2) and 2511(a)).

What that leaves inside the tax is short: United States real estate, and tangible personal property physically located in the United States, such as art, cars, jewellery and bullion held in an American vault. Currency held physically in the United States is generally treated as tangible property, so how cash is given matters; a transfer from an account abroad is not the same transaction as handing over notes in New York.

What it leaves outside is everything else, and in particular shares in United States corporations, American mutual funds, bonds, partnership interests and American bank balances. These are all situs property for estate tax purposes and none of them is reached by the gift tax. A nonresident with an American securities portfolio can therefore give the whole portfolio away, in life, at no United States gift tax cost, and remove from the estate an asset that would otherwise be taxed at 40 percent above a $60,000 exemption. There is no annual limit on this and no lifetime exclusion to use up, because no exclusion is needed.

Three limits apply. A nonresident donor has no unified credit against the gift tax, so where the property is inside the base, real estate above all, the tax starts at the first dollar above the annual exclusion. A transfer made with a retained interest or a retained power, or within three years of death, is drawn back into the taxable estate as United States property (section 2104(b)), so the gift has to be complete and it has to be made in good time. And the donor’s home country taxes the gift in the ordinary way; the American exemption is not a general exemption.

Part IV. Receiving from abroad

A United States person who receives a gift or bequest from abroad owes no tax on the receipt. He does have to report it. The threshold is more than $100,000 in the aggregate for the year from a nonresident individual or a foreign estate, aggregating related donors, and $20,573 in 2026 where the transfer comes from a foreign corporation or partnership (section 6039F, the second figure indexed annually). The report is made in Part IV of Form 3520 with the recipient’s income tax return.

The penalty is what makes this matter. It is 5 percent of the amount of the gift for each month the failure continues, to a maximum of 25 percent, subject to a reasonable cause defence (section 6039F(c)). Because no tax is due on the receipt, the penalty is the entire exposure: a family that receives 1,000,000 dollars from a parent abroad and says nothing can face 250,000 dollars of penalty on a transaction that was never taxable.

Transfers routed through a foreign trust are governed by a different and harsher regime. Failures relating to transfers to, ownership of, and distributions from a foreign trust carry a penalty of the greater of $10,000 or 35 percent of the gross reportable amount, 5 percent in the case of a United States owner’s annual return, with further amounts for each 30-day period after the Service gives notice (section 6677). A gift made through a family foundation, a Stiftung, a fiducie or a Liechtenstein Anstalt is very likely a foreign trust transaction for these purposes even where the family does not think of it as a trust.

Part V. Basis, which is the trap

The instinct to give during life rather than at death is usually an instinct imported from a country where the tax is the only consideration. In the American system the income tax consequence frequently outweighs the transfer tax one.

Property received as a gift carries the donor’s basis (section 1015(a)). Where the property has fallen in value, the donee takes a dual basis: the donor’s basis for computing gain and the value at the date of the gift for computing loss, so a sale between the two figures produces neither. A built-in loss cannot be transferred by gift. Where the donor’s basis cannot be established, and in cross-border families it often cannot, the Service may determine it, and a property bought in Munich in 1974 with no surviving records is a real problem for an American heir who wants to sell.

Property acquired from a decedent is adjusted to its value at the date of death (section 1014(a)). The important point for these families is that the adjustment does not depend on any United States estate tax having been paid: property acquired by bequest, devise or inheritance falls within section 1014(b)(1), which carries no requirement of inclusion in a United States gross estate. Foreign real property inherited by an American from a nonresident alien decedent is therefore adjusted to date-of-death value even though the United States taxed nothing (Revenue Ruling 84-139). Giving that same property away during life would carry the original basis across instead, and with it the whole of the accrued gain.

One exception is worth stating because it is the mirror image. Property that passes by survivorship rather than by inheritance depends on section 1014(b)(9), which does require inclusion in the United States gross estate. An American who survives a foreign joint owner of foreign-situs property generally gets no adjustment at all. That is treated on asset planning using joint titles.

Part VI. The gift tax conventions

Seven of the fifteen estate tax conventions also cover gifts: those with Australia, Austria, Denmark, France, Germany, Japan and the United Kingdom. Where one applies, it allocates the right to tax the gift between the two countries and provides a credit, in the same architecture as the estate tax articles. Where none applies, the two systems operate independently and relief depends on each country’s own domestic credit.

For most families the more useful relief is the home country’s. Germany allows a credit against German gift or inheritance tax for foreign tax of a corresponding kind, on application, in unlimited liability cases only, for tax actually assessed and paid, against German tax on assets falling within the statutory catalogue of foreign property, and only where the German tax arose within five years of the foreign one (section 21 ErbStG). France allows a credit for foreign transfer tax, but only against the French tax attributable to the foreign-situs assets (article 784 A of the Code general des impots). Neither credit helps where the foreign tax fell on the other party to the transaction, which is the structural difficulty with a transatlantic gift: the United States taxes the donor and Germany taxes the donee, and a credit is available to the person who was taxed twice, not to the family as a whole.

Part VII. The clock on the other side

European systems aggregate prior transfers between the same two people, and the periods do not match.

The mismatch between a ten-year German window and a fifteen-year French one, neither of which corresponds to anything in American law, is what makes the sequencing of a multi-country gifting programme a real exercise rather than an arithmetic one. A German allowance used in full refreshes ten years and a day later; a French one takes fifteen years; the American lifetime exclusion never refreshes at all.

Part VIII. Timing and structure

Four timing questions decide most of the value in this area.

Before or after domicile. A non-citizen moving to the United States is a nonresident donor until domicile is acquired and a worldwide donor afterwards. Transfers of intangible property made before the move cost nothing in United States gift tax. This is dealt with on estate planning for non-US citizens.

Gift or bequest. Appreciated property with a low or unprovable basis is usually better left at death, for the basis adjustment. Property likely to appreciate sharply, and property that the American system taxes but the home country does not, is usually better given.

Which asset. For a nonresident, giving American shares removes a situs asset at no gift tax cost, while giving the American house triggers the tax. The asset chosen, not the amount, decides whether there is a tax.

Who the recipient will be. A gift to a person who is or may become a United States person brings that person into the American system, with carryover basis, Form 3520 reporting, and controlled foreign corporation or foreign trust consequences if the gift is made through an entity. A gift from a covered expatriate carries a 40 percent tax payable by the American recipient (section 2801, reported on Form 708).

Part IX. Practical steps

1. Establish the donor’s status before anything else. Citizen, domiciliary or non-domiciliary decides whether there is a United States gift tax at all.
2. Sort the intended gifts by situs and by character. For a nonresident donor, intangible property is free and real and tangible property is not.
3. Check the basis before giving appreciated property, and compare the income tax cost of carryover basis against the transfer tax saved.
4. Use the direct tuition and medical payments. They are unlimited, they are available to nonresident donors, and they must be paid to the institution.
5. Run the home country’s clock. Ten years in Germany, fifteen in France, each measured between the same two people.
6. File Form 3520 for anything received from abroad above the threshold, even though no tax is due. The penalty is measured against the gift.
7. Treat any foreign foundation, Stiftung, fiducie or Anstalt as a foreign trust until advised otherwise, and report accordingly.
8. Complete the transfer. A retained interest or a retained power undoes the whole exercise, and for United States situs property so does dying within three years of it.

Conclusion

Cross-border gifting is the one part of this field where the American rules are unusually generous, and the generosity is confined to a group that rarely knows about it: the nonresident who owns American securities and can give them away untaxed. Everywhere else the exercise is a matter of sequencing two systems that tax different people on different timetables, and of remembering that the transfer tax saved by a lifetime gift is sometimes smaller than the income tax created by it.

How the firm helps

Ashford International Law PC advises on lifetime transfers across borders: establishing the donor’s status, identifying which property is inside and outside the United States gift tax, preparing Forms 709 and 709-NA, reporting receipts from abroad on Form 3520, sequencing a gifting programme against the German ten-year and French fifteen-year periods, applying the gift tax conventions, and weighing the basis consequences of giving rather than bequeathing. Related pages cover asset and tax planning for non-US residents with US assets, estate planning for non-US citizens, non-US decedents, non-US beneficiaries, asset planning using joint titles and marital property regimes. Defined terms are collected in the Topics A-Z. The federal gift, estate and generation-skipping transfer taxes and the state death taxes are summarized on the page on gift and death-related taxes, and the estate tax on citizens and domiciliaries is described on the page on estate tax in the United States.

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.