A Comprehensive Report on U.S. Estate & Inheritance Tax for American Expatriates

Summary

This report provides an exhaustive analysis of the United States estate and inheritance tax framework as it applies to American citizens residing abroad. The central challenge for this demographic lies at the complex and often punitive intersection of U.S. citizenship-based worldwide taxation and the tax laws of their country of residence. While the U.S. offers a substantial federal estate tax exemption, currently valued at nearly $14 million per individual, this generous provision does not shield expatriates from the significant risk of double taxation, where the same assets are taxed by both the U.S. and a foreign jurisdiction upon death.

The primary mechanism for mitigating this risk is a network of international estate and gift tax treaties. However, these treaties are not uniform and their benefits, particularly for U.S. citizens, are frequently misunderstood. A critical "savings clause" in most treaties preserves the United States' right to tax its citizens on their worldwide assets as if the treaty did not exist, fundamentally shifting the treaty's function from a tool of U.S. tax exemption to a mechanism for coordinating tax credits with a foreign country.

The core of this report is a detailed examination of the two distinct philosophical and practical models that govern these agreements: the older "situs-based" treaties, generally effective before 1966, and the modern "domicile-based" treaties that followed. Situs-based treaties allocate taxing rights based on the legal location of each asset, creating a framework where strategic asset structuring is paramount. In contrast, domicile-based treaties, influenced by the OECD Model Convention, assign primary taxing rights to the country where the decedent had their strongest personal and economic connections, making the management of one's personal life and ties—a concept termed "domicile hygiene"—the central planning concern.

The analysis concludes that effective cross-border estate planning is impossible without a nuanced understanding of these differing treaty regimes. For Americans living abroad, there is no ...