What happens to your U.S. assets if you die abroad?

If you die while living abroad, the fate of your U.S. assets depends on several factors. 

What types of assets do you have? Are you still a U.S. citizen or resident at the time of your death? Is the person inheriting the assets a U.S. citizen or resident? Or do they have no connection to the U.S. themselves? 

If you have a 401(k) and you are living outside the U.S., and your spouse, who’s also not American, is living abroad as well, what happens if you die? Will the provider allow a spousal rollover or beneficiary account? 

Some U.S. providers will not open an inherited or spousal rollover IRA or 401(k) for a non-U.S. resident beneficiary. 

A lot of 401(k) providers, particularly, do not like dealing with clients once they are outside the U.S. They may even force you to close your plan. 

Or will they simply say, ‘We can’t do that – you don’t have a Social Security number or U.S. address’ and then sell the assets and send a cheque in the post. 

These are important questions, and it is prudent, if you move away from the U.S., to find a financial adviser who is knowledgeable in both jurisdictions – the U.S. and the country you’ve moved to. 

The upside of U.S. investment accounts is that they are generally very cheap. 

Most platforms in the country operate at a very low cost, and users can make as many trades as they like. 

Because of this, when people leave the U.S. they often leave their money there. 

In terms of security, if a big U.S. financial firm were to go bust, the Federal Reserve would step in – it’s about as secure as it gets. 

The problem is that by leaving money in the U.S., you're potentially exposing yourself to US estate taxes. 

Many people assume the estate tax exemption – currently around $13 million – will protect them. 

However, this doesn’t apply in the same way if you're not a U.S. resident. If you pass away, there could be significant tax implications, and the admin process for a non-U.S. resident inheriting those assets can be a real headache. 

When if you’re a U.S. citizen or resident and you die while living abroad, your worldwide assets are still subject to the U.S. federal estate tax, regardless of where you are residing at the time. 

But even if you’re not actually a resident in the U.S., you may be subject to estate tax on any assets you have in the U.S. 

U.S.-situated assets that are subject to estate tax include, for example: 

• Real estate located in the U.S. 

• Tangible personal property (excluding some art) 

• Stock of corporations organised in or under U.S. law, even if the non-resident held the certificates abroad or registered the certificates in the name of a nominee 

This is often a significant challenge for individuals who have accumulated assets in the U.S. but are not U.S. citizens. If you’re a non-U.S. citizen, not a green card holder, and not a U.S. resident – a situation that applies to many who acquired assets in the U.S. before moving elsewhere – any U.S.-based assets exceeding $60,000 are subject to a 40% estate tax upon death. 

In the U.S., it is the estate itself that is taxed, not the individual beneficiaries. This differs from inheritance tax systems common in many other countries, where the tax is applied to the person receiving the inheritance rather than the estate. 

As a result, many people may inherit U.S. assets without any estate tax being paid, simply because the estate wasn’t large enough to trigger taxation in the U.S. However, the recipient may still face inheritance tax in their home country – for example, in Europe. 

When the U.S. estate is substantial enough, the estate tax can be particularly aggressive – a fact that many people are unaware of. 

In the UK, when someone passes away, their assets typically transfer to their spouse tax-free. 

But that’s not the case with U.S.-based assets like a 401(k). If you’re a UK citizen with a 401(k) in the U.S., those UK inheritance rules don’t apply. 

Instead, the U.S. estate tax is levied immediately upon death, rather than allowing a tax-free transfer to a surviving spouse. 

There is also a risk that the inheritor will be double-taxed. The inherited assets may be subject to estate tax in the U.S. and inheritance tax in the country in which they reside. 

Even though the U.S. has estate or gift tax treaties with various nations – including the UK, France, Germany, Canada, etc – to help prevent double taxation, these treaties are complicated and country-specific. 

For example, its agreement with the UK caps U.S. estate tax to what would have applied if the decedent had been U.S.-domiciled – often resulting in zero U.S. tax for UK domiciliaries with no U.S. gifts. 

With France, it contains provisions to allocate taxing rights and allow foreign credit; French–U.S. arrangements help cross-border families avoid inheritance tax duplication. 

And the agreement with Canada includes estate tax provisions within income tax treaty; grants enhanced credit and marital benefits. 

If you’re planning to relocate from the U.S. - or if you’ve already moved - it’s essential to understand the cross-border complexities that could affect your estate and your beneficiaries. Without careful planning, you risk unnecessary taxation or complications that could prevent your assets from being passed on as intended. 

Given how complex and often opaque these rules can be, it’s wise to seek advice from a specialist who understands both U.S. and international markets.

At Hoxton Wealth, our advisers are experienced in navigating these cross-border challenges and can help you structure your assets efficiently to better protect your legacy. 

If you’d like to discuss your situation or explore your options, contact a Hoxton Wealth adviser today. 

Disclaimer: This article is for general informational purposes only. It does not constitute financial, legal, or tax advice. The rules regarding estate planning, taxation, and inheritance vary significantly by country and individual circumstances. Readers should consult with qualified professionals in their respective jurisdictions before making financial decisions.

In our next article in our U.S. retirement planning series, we'll talk about the risks of currency fluctuations when moving ab