At Copper State Planning, we help international families align their estate planning with Arizona statutes and federal rules. Our estate planning services page explains the fundamentals, while the main Copper State Planning website introduces our full team.
The Internal Revenue Service applies one set of estate‑and‑gift‑tax rules to a U.S. citizen spouse and a different, often less favorable, set to a non‑U.S. citizen partner. Because Arizona law still governs property located within the state, every estate planning document must satisfy Arizona statutory requirements even if the U.S. citizen spouse later relocates abroad. Without a proactive strategy, a large tax bill can surprise anyone who has property located in Arizona or other foreign countries. The risk of double taxation is real because the United States may levy estate tax on U.S.-situs assets while another nation claims inheritance duties. Thoughtful drafting helps keep the US estate tax to a minimum and ensures smooth wealth transfers.
This article gives an overview of potential estate and gift tax exposure, the estate tax return, and which trusts are available to secure the unlimited marital deduction or defer the tax until the surviving spouse passes away.
Why Estate Planning Matters for Foreign Nationals
Whether you hold an L-1 visa, permanent resident status, or no immigration status at all, your worldwide assets can trigger U.S. estate tax once you develop domicile. Non-citizens who meet the IRS’s definition of a resident are subject to federal gift and estate taxes on all their worldwide money and property. Yet Congress offers only a $60,000 cushion for non-residents; exceed it and the federal estate tax is assessed. A non-citizen spouse can inherit from a U.S. citizen spouse free of estate tax if the surviving spouse becomes a citizen before distributions are made. Thus, cross-border estate planning focuses on minimizing taxes and coordinating estate plans so that foreign countries give credit for U.S. payments.
Understanding Residency and Domicile for U.S. Tax Purposes
The IRS uses separate tests for income and estate tax. The IRS looks at intent—your lease, mortgage payments, U.S. driver’s license, and what a married couple jointly owns, such as a jointly owned home. Evidence that the citizen spouse spends more days abroad can also defeat domicile.
Keeping a house abroad, maintaining ties to foreign countries, and limiting the days you reside in the U.S. can help you remain a non-domiciliary. Once a person with lawful permanent resident status is deemed domiciled here, the IRS may impose taxes on worldwide wealth. In case of a dispute, the deceased person’s nationality and foreign voter registration can tip the balance.
Tax Considerations: Estate and Gift Rules for Non-U.S. Citizens
Below is a snapshot of current estate tax and gift tax thresholds—always confirm the numbers before filing:
| Status | Estate-Tax Exemption | Annual Gift to Spouse | Lifetime Gift Exemption |
|---|---|---|---|
| Citizen / Resident | Current full exemption | Unlimited | Mirrors estate exemption |
| Non-Resident Alien | $60,000 on U.S. assets | $190,000 (indexed to inflation) | None |
Because a noncitizen spouse does not enjoy the unlimited marital deduction, large lifetime gifts can mitigate future estate exposure, but at the cost of gift tax liability. Channeling excess transfers into a foreign trust may impose periodic taxes under the grantor-trust rules. You may be able to gift a tax-free amount when treaties overlap.
When a U.S. citizen marries a foreigner, they must consider federal estate tax on worldwide holdings, while the non U.S. citizen spouse is exposed only via U.S.–situs property unless they become a resident. Because these rules are complicated, any Arizona homeowner with cross-border assets should confirm titling and treaty protection during the planning process.
When a citizen spouse dies, the personal representative must inventory every asset counted in the citizen spouse’s estate to determine whether the estate is incurring estate tax liability. Although the federal exclusion stands at $13.99 million for 2025, the Tax Cuts and Jobs Act establishes criteria for that amount to reset on January 1, 2026 (the exemption was made permanent in the Big Beautiful Bill). However, future Congresses can reduce the exemption. If the estate tax exemption drops from its present level, families who have not planned can confront a large estate tax bill. The danger grows where a non-citizen owns property jointly with the decedent, because—absent clear documentation regarding contributions—the IRS assigns the entire value to the U.S. taxpayer’s estate.
Under U.S. law, the breadth of the levy turns on domicile and citizenship: if the surviving spouse proves that the deceased maintained a permanent home abroad and intended to return, only American-situs assets are taxed, and the non-citizen spouse eventually receives foreign holdings free of U.S. transfer taxes. However, if the U.S. is deemed the decedent’s true home, worldwide wealth is pulled into the estate, triggering a large estate tax bill for the citizen spouse. If the couple is non-citizens and the surviving non-citizen spouse proves that the decedent never established U.S. domicile, the IRS will tax only the decedent’s U.S.–situs assets, leaving foreign property outside the federal estate-tax base.
U.S. Estate and Gift Tax Exposure: Unlimited Marital Deduction & Qualified Domestic Trust
When a citizen dies, assets can pass to another U.S. citizen without tax thanks to the unlimited marital deduction. But when the surviving spouse is a non-citizen, the estate must place assets into a qualified domestic trust (QDOT) if the couple wishes to postpone the estate tax until the surviving spouse dies.
QDOT Requirements
The trustee must be a U.S. citizen, a bank, or a trust company, and any property transferred into the QDOT becomes part of the surviving spouse’s taxable estate. Distributions of principal are subject to the tax and may require withholdings. Conversely, if the trustee distributes income to the U.S. citizen spouse, withholding is not required. The IRS offers model language for a QDOT, but customization is vital because some overseas jurisdictions restrict trust usage.
A mirror structure may be created under foreign inheritance rules if needed, and diligent estate planning avoids surprises.
Trust Property Strategies in Foreign Jurisdictions
Segregating trust property into domestic and offshore silos helps maintain taxation segregation. For example, a foreign grantor trust can hold foreign property in civil law countries such as France, where local statutes mandate shares for spouses equally. If the trust later distributes to U.S. beneficiaries, the trustee must track trust assets that carry built-in gains to avoid phantom capital gains tax.
Certain venues with the highest inheritance tax rate allow asset-protection trusts, but classic FAPT jurisdictions (e.g., the Cook Islands or Nevis) have low inheritance tax and strong asset-protection statutes. An unrelated party can serve as a trust protector or trustee. Some jurisdictions may levy periodic taxes on high-value trusts if reporting is late.
Asset Protection Strategies for Foreign Nationals
Clients often ask how to safeguard wealth against lawsuits or unexpected creditor claims. The two most common approaches are U.S. domestic asset-protection trusts (DAPTs) and foreign asset protection trusts (FAPTs).
| Strategy | Core Idea | Jurisdiction & Creditor Reach | Key Compliance Points |
|---|---|---|---|
| Foreign Asset Protection Trust (FAPT) | Transfer assets into an irrevocable trust established in a country that bars foreign judgment enforcement. | A creditor holding a U.S. court judgment must file a new lawsuit in the foreign venue—often within a short limitation period—and most FAPT jurisdictions decline to recognize or enforce outside judgments. | • Transfers must not be made to defeat a specific creditor already pursuing collection. • Set-up requires counsel conversant with the chosen country’s trust and banking statutes. • FAPTs can hold virtually all the assets—real estate, marketable securities, even intellectual-property rights. |
| Domestic Asset-Protection Trust (DAPT) | Use a U.S. state statute (e.g., Nevada or South Dakota) that allows self-settled spendthrift trusts. | Assets remain under U.S. jurisdiction, so an Arizona or federal court can still compel distribution if fraudulent transfer rules apply. | • State law varies; Arizona has no DAPT statute. • A future creditor may still sue where the asset or trustee is located. |
| Qualified Domestic Trust (QDOT) | Ensure a non- citizen spouse can access inherited assets from a citizen spouse without an immediate estate-tax hit. | Assets stay in the United States under a U.S. bank or trust company trustee; principal distributions for the surviving spouse’s ‘immediate and substantial financial need’ (as defined in §2056A) are exempt from the deferred tax. | • Only defers—not escapes—tax. • Mandatory U.S. trustee retains withholding responsibility. |
Practical Takeaways
- Location matters. The Cayman Islands, Cook Islands, and Jersey remain popular because local courts do not enforce foreign money judgments.
- Timely transfers are critical. Moving property to a FAPT after a lawsuit is filed invites a fraudulent-transfer finding. Courts in creditor-friendly common law countries look to timing and intent rather than mere domicile.
- Professional guidance is essential. Establishing a compliant FAPT requires attorneys licensed abroad, plus U.S. tax counsel to navigate FBAR, FATCA, and Subpart F reporting.
- Blend strategies when appropriate. A family might pair a DAPT for domestic rental holdings with a FAPT for overseas accounts, while using a QDOT to shelter marital assets for a non U.S. citizen spouse.
Coordinating a Non-U.S. Citizen’s Property Located Abroad & in Arizona
Start by listing every asset and where each property is located—Arizona real estate, brokerage accounts, or art in multiple foreign countries. Title documents should clarify whether the non-citizen spouse is a joint tenant or beneficiary.
Clients may need to execute multiple wills so each instrument follows local law without conflict. They may need to execute these wills in a particular order as well. We will also want to ensure the local jurisdiction will recognize international wills of the foreign country. The goal is a legally effective international instrument that courts will accept.
For example, when non non-citizen’s property includes a Tokyo apartment, holding that unit in a local company can limit Japanese duties while keeping the U.S. estate tax manageable. For Arizona holdings, transferring title to an LLC eases title transfers in certain situations.
Civil Law vs. Common Law Systems: Governing Law & Local Law Conflicts
Estate planning is rooted in private law, the branch of a legal system that regulates relationships and property rights between individual persons rather than between individuals and the state. The U.S. is largely a common law country, which allows freedom to govern one’s estate as one wishes, with few exceptions. Other countries are civil-law countries and have forced heirship. In these civil law systems, forced-heirship rules may demand that portions of the estate be reserved for children.
If documents choose the wrong jurisdiction, litigation can erupt over taxation priority. Our team works with overseas counsel to confirm which court has authority and whether a trust-based estate planning solution can operate abroad. Proper coordination prevents further tax disputes when a citizen dies owning mixed assets.
Building a Cross-Border Estate Plan That Works
A comprehensive plan covers wills, powers of attorney, medical directives, and funding for the transfer tax due within nine months. It also tracks property located in the United States and property located in foreign jurisdictions, so a citizen spouse can properly choose which assets to take in trust and which ones to take outright or disclaim. Proper gift tax record-keeping is also crucial.
Effective estate planning also contemplates liquidity at end of life. Life insurance, standby credit lines, or planned trust-property sales ensure that the executor can pay obligations without a fire-sale of assets. Adequate liquidity means that, should the deceased spouse’s executor face a nine-month deadline, cash is available to pay the initial estate tax installment.
Effective planning also includes powers of attorney. If the spouse who controls liquidity is abroad or becomes incapacitated, a durable power of attorney named in advance avoids crises. One should designate the citizen spouse as the primary agent when possible.
By updating previously drafted wills, you keep the plan current. Calculating the entire purchase price of new real estate ensures that the citizen pays only the incremental gift tax that appreciation creates.
Putting It All Together: Next Steps with Copper State Planning
Cross-border estate planning demands constant vigilance—but you don’t have to do it alone. Our team has colleagues in foreign countries. We’ll prepare every form and keep both the citizen spouse and the non-citizen spouse informed. We will structure your plan so the unlimited marital deduction—or a QDOT deferral—applies whenever the law allows. With clear instructions, your estate will settle smoothly, and your spouse will receive what they are due and pay less tax.
Ready to protect assets on two continents? Contact Copper State Planning to begin building a plan that works—everywhere you call home.
