Estate Planning with Foreign Real Estate in Tax Treaties

Owning foreign real estate can be a valuable component of your legacy — but it also introduces significant tax complexity during estate transfers.

Estate planning for international properties requires an understanding of tax treaties, inheritance laws, and reporting duties in both the U.S. and the foreign jurisdiction.

In this guide, we’ll explore how to optimize estate planning using foreign real estate held in treaty-partner countries.

📌 Table of Contents

• Why Foreign Real Estate Requires Special Planning
• How Tax Treaties Can Reduce Estate Taxes
• Correct Titling of Foreign Properties
• Using Trusts and Entities Across Borders
• Compliance and Reporting Duties

Why Foreign Real Estate Requires Special Planning

Unlike U.S. real estate, foreign properties are governed by different inheritance regimes — some favor forced heirship, others have estate taxes that apply to non-residents.

Additionally, the U.S. global estate tax regime means your foreign real estate may be taxed twice unless treaty relief applies.

Without proper planning, your heirs may face probate in multiple countries or incur legal delays.

How Tax Treaties Can Reduce Estate Taxes

The U.S. has estate and gift tax treaties with countries like France, Germany, the UK, and Japan.

These treaties can help determine residency, prevent double taxation, and offer credit for foreign estate taxes paid.

They often follow an “exclusive taxation” model where only one country taxes the asset, based on the situs or location.

Correct Titling of Foreign Properties

In some jurisdictions, it may be preferable to own property in personal name to access treaty benefits.

In others, holding via a local corporation or nominee structure may offer privacy or liability protection — but can trigger U.S. reporting (e.g., Form 5471).

Each country’s title and inheritance system affects how property passes upon death — work with local counsel.

Using Trusts and Entities Across Borders

Foreign assets held in U.S. trusts can cause recognition issues abroad, where trusts may not be legally acknowledged.

Likewise, LLCs and revocable living trusts must be structured carefully to avoid foreign income tax or civil law conflict.

In many treaty countries, a testamentary will with situs-specific provisions may be more effective.

Compliance and Reporting Duties

Owners of foreign property must often file:

✔ Form 8938 (FATCA)

✔ FBAR if rental income flows to a foreign bank

✔ Country-specific disclosure forms (e.g., France’s SCI reporting)

Failure to report can lead to steep IRS penalties, especially for high-value property.

Useful Resources for International Estate Planning

These resources offer advanced strategies to optimize international assets for long-term wealth preservation and estate efficiency.

Keywords: estate planning, foreign real estate, tax treaties, inheritance tax, international compliance