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Connect on LinkedInA foreign estate is an estate created after the death of a person outside the United States or treated as foreign under U.S. tax rules. For U.S. expats, the term often comes up when receiving an inheritance from abroad, administering a non-U.S. estate, or dealing with foreign assets after someone dies.
Why it matters for U.S. expats
A foreign estate can create U.S. reporting issues even when the inheritance is handled entirely outside the United States. A U.S. person who receives a large bequest from a foreign estate may need to file Form 3520, while income earned by the estate, inherited foreign accounts, foreign real estate, trusts, or U.S.-situated assets can create additional U.S. tax or reporting requirements.
Common questions
1. Do U.S. expats pay U.S. tax on an inheritance from a foreign estate?
A true inheritance is not taxed as income on a U.S. return. Income earned by the inherited assets, estate income distributed to the beneficiary, or gains from selling inherited property can still be taxable.
2. When does a foreign estate inheritance need to be reported on Form 3520?
A U.S. person must file Form 3520 if they receive more than $100,000 in gifts or bequests from a nonresident alien individual or foreign estate during the year.
3. Is Form 3520 a tax return?
No. Form 3520 is an information return. It reports certain foreign gifts, bequests, and foreign trust transactions, but filing it does not automatically mean tax is owed.
4. Can a foreign estate create U.S. income tax for a beneficiary?
Yes. If the estate distributes income, or if inherited assets later produce interest, dividends, rent, capital gains, or other income, the U.S. beneficiary may need to report that income.
5. Does inheriting foreign real estate create U.S. tax?
Receiving the property is not taxed as income, but selling it later can create a U.S. capital gain or loss. The U.S. calculation uses U.S.-dollar values and may differ from the foreign country’s calculation.
6. Do inherited foreign bank accounts need to be reported on FBAR?
Yes, if the U.S. person has financial interest in or signature authority over the accounts and the aggregate foreign account value exceeds the FBAR threshold.
7. Is a foreign estate the same as a foreign trust?
No. A foreign estate is connected to the administration of a deceased person’s assets. A foreign trust is a separate legal arrangement that can have its own reporting rules, including Forms 3520 and 3520-A.
8. Can a foreign estate trigger U.S. estate tax?
Yes, depending on who died, their U.S. citizenship or domicile status, and the assets involved. U.S. citizens are subject to U.S. estate tax on worldwide assets, while nonresident noncitizens may have U.S. estate tax exposure on certain U.S.-situated assets.
9. What is Form 706-NA used for?
Form 706-NA is used to compute estate and generation-skipping transfer tax for nonresident alien decedents with U.S. estate tax exposure.
10. What records should U.S. expats keep for a foreign estate?
Keep the will, probate documents, estate accounts, asset valuations, distribution records, foreign tax documents, bank statements, property records, exchange-rate calculations, and any correspondence from the executor or administrator.
Related forms
- Form 3520: Reporting foreign gifts and foreign trusts
- Form 1040: U.S. Individual Income Tax Return
- Form 1041: U.S. Income Tax Return for Estates and Trusts
- Form 706-NA: Estate tax return for nonresident alien decedents
- FinCEN Form 114: FBAR reporting
When to get help
Professional guidance is important when:
- You received an inheritance or bequest from a foreign estate.
- The total received from foreign individuals or a foreign estate exceeded $100,000.
- You inherited foreign bank accounts, brokerage accounts, real estate, business interests, or trust interests.
- The estate distributed income, not only capital or property.
- You need to determine whether Form 3520, FBAR, Form 8938, Form 1041, or Form 706-NA applies.
- You sold inherited foreign property and need to calculate U.S.-dollar gain or loss.
- The estate involves a covered expatriate, foreign trust, non-U.S. executor, or U.S.-situated assets.
Bright!Tax can review foreign estate distributions, identify the U.S. forms required, and help report foreign inheritances, inherited accounts, and related income correctly. Get started with Bright!Tax.
Related Bright!Tax guides
Official sources
- IRS: Instructions for Form 3520
- IRS: Publication 559, Survivors, Executors, and Administrators
- IRS: About Form 1041
- IRS: About Form 706-NA
- IRS: Estate tax
Reviewed by
Katelynn Minott, CPA & CEO
Last reviewed
July 2026