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What Expatriates Need to Know: How U..S Inheritance Tax Laws Might Impact Your Inheritance/Estate/Gift Tax

A Guide To US Gift and Estate Tax For U.S. Expatriates

Are you worried about paying inheritance/estate/gift tax in the United States and your country of residence? In this guide, we’ll discuss what the inheritance tax is when it’s taxable and what tax obligation you might have in relation to inheriting an estate.

Losing a loved one is often an emotionally charged and complicated process. Things can get even more complicated by different laws and regulations if you’re inheriting property from someone who lives overseas or you reside abroad. It’s important to understand how US inheritance tax laws might impact you.

What Is An Inheritance? What is the Estate Tax?
The term “inheritance” refers to the transfer of wealth from a deceased person to his or her heirs. This includes real estate, stocks, bonds, cash, bank accounts, retirement plans, life insurance policies, etc. The estate tax is a state tax that you pay when you receive money or property from the estate of a deceased person.

What Is an Estate?
In the United States, a deceased person’s estate is a legal entity created after his/her passing. It is usually responsible for collecting the deceased person’s worldwide assets, paying off any outstanding debts, and distributing the rest among the deceased person’s beneficiaries. The estate includes everything the deceased person owned, whether real or personal property, tangible or intangible, anywhere in the world. The Estate tax is a tax on the estate (the property, money, and possessions) of someone who’s died.

How Much Can a U.S. Citizen Inherit Tax-Free?
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Written by Olivier Wagner | Posted in Inheritance Tax

Charles Woodson, Estate Tax, Inheritance Tax Expert

A frequent question is whether inheritances are taxable. This is a frequently misunderstood question related to taxation and can be complicated. When someone passes away, all of their assets will be subject to inheritance taxation, and whatever is left over after paying the inheritance tax passes to the decedent’s beneficiaries.

Sound bleak? Don’t worry, very few decedents’ estates ever pay any inheritance tax, primarily because the code exempts a liberal amount of the estate from taxation; thus, only very large estates are subject to inheritance tax. In fact, with the passage of the Tax Cuts & Jobs Act (tax reform), the estate tax deduction has been increased to $11,180,000* for 2018 and is inflation adjusted in future years. That generally means that estates valued at $11,180,000* or less will not pay any federal estate taxes and those in excess of the exemption amount only pay inheritance tax on amounts in excess of the exemption amount. Of interest, there are less than 10,000 deaths each year for which the decedent’s estate exceeds the exemption amount, so for most estates, there will be no estate tax and the beneficiaries will generally inherit the entire estate.

* Note that, as with anything tax-related, the exemption is not always a fixed amount. It must be reduced by prior gifts in excess of the annual gift exemption, and it can be increased for a surviving spouse by the decedent’s unused exemption amount.