How Does an Estate Handle International Real Estate? (w/Examples) + FAQs

An estate handles international real estate by opening a separate legal proceeding in the country where the property is located. A U.S. will and a U.S. court’s authority stop at the border, so they cannot legally transfer a foreign property title to your heirs.

The primary conflict is a legal doctrine called lex situs (Latin for “law of the place”). This rule states that all matters concerning real estate are governed by the laws of the country where the property physically stands. This directly overrides the instructions in a U.S. will, forcing your estate into a costly and complex foreign court process, often with surprise outcomes.

With over half a million families in the EU alone dealing with cross-border inheritances annually, this is a widespread and growing challenge.

Here is what you will learn:

🗺️ You will learn why your U.S. will is powerless over your foreign property and which country’s laws take control.
⚖️ You will understand the critical difference between Common Law and Civil Law systems and how “forced heirship” can derail your wishes.
💸 You will discover how to avoid the double taxation trap where two countries tax the same property.
🗝️ You will learn about the essential legal tools, like situs wills and trusts, that give you back control over your global assets.
📋 You will get a step-by-step guide to the foreign probate process and the critical IRS forms you cannot ignore.

The Unseen Legal Borders That Control Your Property

Why Your U.S. Will Stops at the Water’s Edge

You may think your U.S. will covers all your assets, but it does not. A fundamental legal principle, lex situs, gives total control over real estate to the country where it is located. A probate court in Ohio has no power to transfer the deed to your vacation home in Mexico.

This means your U.S. executor cannot simply sell your foreign property or hand the keys to your beneficiaries. They must start a second, separate probate case in that foreign country. This secondary process is called ancillary probate. It is mandatory, expensive, and can drag on for years, leaving your heirs waiting and your property in legal limbo.

The Great Divide: Common Law vs. Civil Law

The world has two main legal systems, and they treat inheritance in opposite ways. The U.S. uses a common law system, which values testamentary freedom. This means you have the freedom to leave your property to whomever you wish, including disinheriting your own children.

Most of Europe, South America, and parts of Asia use a civil law system based on ancient Roman codes. These systems prioritize the family bloodline over your personal wishes. They enforce a rigid rule called forced heirship, which legally requires you to leave a large portion of your estate to specific “forced heirs,” usually your children.

For example, in France, one child is legally entitled to 50% of your estate’s assets located there. If you have three or more children, they are guaranteed 75% of the property, no matter what your will says. Your will only controls the small “disposable portion” that remains.

Three Words That Determine Everything: Domicile, Residency, and Situs

These three terms are often confused, but they have huge legal and tax consequences. Understanding them is critical for anyone with international ties.

Domicile is your true, permanent home—the place you intend to return to, even if you are living somewhere else temporarily. You can have many residences, but you only have one domicile. For U.S. citizens, your domicile determines which court handles your main probate and subjects your entire worldwide estate to the U.S. federal estate tax.

Residency is simply where you live. It is mainly used for income tax purposes, but it can also trigger foreign inheritance taxes. A country might tax an inheritance based on the residency of the person who died or the person who is inheriting.

Situs is the legal location of an asset. For real estate, the situs is always the country where it is physically located. This is the most important concept for international real estate because the law of the situs country always wins when it comes to that property.

Real-World Scenarios: How International Estates Go Wrong

Scenario 1: The Vacation Villa and the Surprise Heirs

Maria, a U.S. citizen living in Florida, writes a simple U.S. will. She leaves her entire estate, including her beloved seaside villa in Spain, to her devoted nephew, David. When Maria dies, David discovers that Spanish law, not Maria’s will, controls the villa.

Mistake	Painful Result
Maria relied on her U.S. will to control a Spanish property.	Spanish forced heirship laws were triggered. Maria’s estranged children, whom she had not spoken to in years, were legally entitled to two-thirds of the villa’s value.
No Spanish will was created.	David had to hire Spanish lawyers to navigate a complex foreign legal system. The process took years and cost tens of thousands of dollars in legal fees.
The plan ignored the lex situs rule.	Maria’s clear wish to give the villa to David was overridden. David was forced to either sell the villa and give the children their share or buy them out, shattering the inheritance Maria intended.

Scenario 2: The Unprepared Executor’s Nightmare

Tom is named the executor of his father’s estate in New York. While going through paperwork, he finds a deed for a rental property in London, England. Tom has never handled an estate before and has no idea what to do.

Mistake	Painful Result
The father did not inform Tom about the London property or leave clear instructions.	Tom was legally responsible for the property but had no authority in the U.K. He could not legally collect rent, pay taxes, or manage the property from the U.S..
Tom delayed hiring a U.K. solicitor.	The property sat vacant, falling into disrepair and becoming a target for squatters. The estate was fined for unpaid local property taxes, and the beneficiaries became angry about the delays and loss of rental income.
The U.S. will had to be “resealed” in the U.K.	The process of getting the U.K. court to recognize the U.S. probate took over a year. It required expensive, authenticated documents and constant coordination between lawyers in two countries.

Scenario 3: The Double Capital Gains Tax Trap

Susan inherits her mother’s apartment in Germany. Her mother bought it for €100,000 years ago. At the time of her mother’s death, the apartment is worth €500,000. Susan sells it a month later for the same price.

Mistake	Painful Result
Assuming U.S. tax rules apply everywhere.	The U.S. has a “step-up in basis” rule, which makes the asset’s value at the time of death its new cost basis. For U.S. tax purposes, Susan had no capital gain.
Ignoring foreign capital gains tax laws.	Germany does not recognize the U.S. step-up in basis rule. German tax authorities calculated the gain from the original purchase price of €100,000, creating a €400,000 taxable gain.
Not consulting an international tax advisor.	Susan was hit with a massive, unexpected German tax bill. She paid tax on the same gain in Germany and had to navigate complex foreign tax credit rules on her U.S. return to avoid being taxed twice on the same money.

Strategic Tools for a Global Estate Plan

The Multi-Will Strategy: A Will for Each Country

The most effective strategy is often to have multiple wills, also known as situs wills. You would have a U.S. will for your U.S. assets and a separate, foreign will for the property in each country where you own real estate.

A local lawyer in that country should draft the foreign will. This ensures it complies with all local laws, including forced heirship rules, and is written in the local language. This avoids the need for costly translations and the risk of a foreign court rejecting your U.S. will.

The biggest danger is accidental revocation. A standard will contains a clause that says, “I revoke all prior wills.” If both your U.S. and foreign wills have this language, the one you sign last will cancel out the other. Each will must be carefully drafted to limit its scope, stating it only applies to assets in its specific country and does not revoke your other wills.

Pros and Cons of Using Multiple Wills
Pros
✅ Faster Probate: Allows for simultaneous court proceedings in each country, saving years of delay.
✅ Local Compliance: A local lawyer ensures the will follows all foreign rules, avoiding challenges.
✅ No Language Barriers: Avoids expensive and potentially inaccurate legal translations.
✅ Clarity for Executors: The executor in each country has a clear, legally valid document to follow.
✅ Respects Local Laws: Acknowledges and plans around mandatory rules like forced heirship from the start.

When to Use a Trust (and When Not To)

In the U.S., a Revocable Living Trust is a popular tool to avoid probate. It is tempting to think you can just put your foreign property into your U.S. trust. This is a dangerous mistake.

Many civil law countries do not recognize the concept of a trust. Trying to title a French château in the name of a U.S. trust can lead to the local land registry refusing the deed. It could also trigger immediate and massive foreign gift or corporate taxes. The tool that works perfectly at home can create a tax and legal nightmare abroad.

However, one specific trust is essential in certain situations: the Qualified Domestic Trust (QDOT). If your spouse is not a U.S. citizen, you cannot leave them an unlimited amount of assets tax-free. To defer the U.S. estate tax, assets left to a non-citizen spouse must go into a QDOT. This is a strict IRS requirement that, if missed, can trigger an immediate estate tax bill.

The Executor’s Gauntlet: Managing a Cross-Border Estate

The Two-Court Problem: Domiciliary and Ancillary Probate

When you die, your estate goes through a primary court process called domiciliary probate in the state where you were domiciled. This court appoints your executor and oversees your main estate. However, this court’s power stops at the U.S. border.

To deal with your foreign real estate, your executor must open a second probate case, known as ancillary probate, in the country where the property is located. This process is mandatory to legally transfer the property’s title. The foreign court’s goals are to ensure local laws are followed, local creditors are paid, and all foreign taxes are settled before the asset leaves the country.

Step-by-Step: The Ancillary Probate Process

The process can be slow and bureaucratic, often taking years to complete.

Hire a Local Lawyer: The U.S. executor must hire a lawyer in the foreign country. A U.S. lawyer is not licensed to practice law there.
Appoint a Local Representative: The foreign court may require the appointment of a local resident or professional to act as the ancillary administrator or co-executor.
Authenticate U.S. Documents: The foreign court will not accept simple copies of the U.S. will or court orders. It will demand official, certified copies that have been authenticated through a process called an apostille or “exemplification.” These documents must also be professionally translated, adding significant cost and delay.
Follow Local Procedures: The executor must follow all local rules, which may include publishing notices to creditors in foreign newspapers, getting a local appraisal of the property, and filing foreign tax forms.
Get Court Approval: Only after all local debts and taxes are paid will the foreign court issue an order allowing the property to be sold or transferred to the heirs.

Do’s and Don’ts for Executors

Do’s	Don’ts
✅ Act Immediately: Secure the foreign property right away. Change the locks, ensure it’s insured, and arrange for maintenance to prevent damage or squatters.	❌ Don’t Assume Authority: Your U.S. court appointment means nothing abroad until a foreign court recognizes it. You cannot legally act until then.
✅ Hire a Team: Immediately engage a lawyer and a tax professional in the foreign country. You cannot do this alone.	❌ Don’t Use Local Real Estate Agents Recommended by the Seller: Hire your own independent legal and real estate advisors to protect the estate’s interests.
✅ Communicate Constantly: Keep all beneficiaries informed about the process, delays, and costs. Transparency prevents suspicion and disputes.	❌ Don’t Mingle Funds: Keep estate funds separate. Proceeds from the sale of a foreign property should go into a separate estate account.
✅ Get a Professional Valuation: Hire a certified local appraiser to value the property as of the date of death. This is required for both U.S. and foreign tax filings.	❌ Don’t Ignore Currency Risk: Exchange rate fluctuations can dramatically change the value of sale proceeds. Work with a currency specialist to manage this risk.
✅ Keep Meticulous Records: Document every decision, expense, and communication. You have a legal duty to the beneficiaries and may need to defend your actions.	❌ Don’t Distribute Assets Too Early: Do not transfer any assets to heirs until all foreign debts and taxes have been calculated and paid. You could be held personally liable.

The Tax Maze: U.S. and Foreign Reporting Requirements

The U.S. Global Reach: Estate and Capital Gains Taxes

The U.S. taxes its citizens and domiciliaries on their worldwide assets. This means your foreign real estate is included in your estate for U.S. federal estate tax purposes. For 2025, the federal estate tax exemption is very high—$13.99 million per person—so most estates will not owe this tax.

However, several states have their own estate tax with much lower exemptions. For example, Massachusetts and Oregon tax estates worth over $1 million.

When you inherit foreign property, the U.S. gives you a step-up in basis to the property’s fair market value on the date of death. If you sell it immediately, you should have little to no U.S. capital gains tax. As seen in Scenario 3, the foreign country may not offer this benefit and could tax you on the gain from the original purchase price.

Critical IRS Reporting Forms You Can’t Ignore

Even if you owe no tax, the IRS requires you to report foreign assets and inheritances. The penalties for failing to file these informational forms are severe, often starting at $10,000 or a percentage of the asset’s value.

Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts: You must file this form if you receive an inheritance from a foreign person or estate valued at more than $100,000. This is just an informational form, but the penalty for not filing starts at 5% of the inheritance value per month, up to a maximum of 25%.

FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR): If the proceeds from selling the foreign property are held in a foreign bank account, and the total of all your foreign accounts exceeds $10,000 at any time during the year, you must file an FBAR. Willful failure to file can lead to penalties of up to 50% of the account balance.

Form 8938, Statement of Specified Foreign Financial Assets (FATCA): This form is filed with your tax return. If you live in the U.S. and have foreign financial assets (which can include an interest in foreign real estate held through an entity) worth more than $50,000, you may need to file this form. The penalty for not filing is $10,000, with more penalties if you fail to file after being notified by the IRS.

Mistakes to Avoid

Relying on a Single U.S. Will: This is the most common and costly mistake. It is ineffective for transferring foreign real estate and creates massive delays and legal conflicts.
Forgetting to Update Your Plan: A major life event like a marriage, divorce, or birth requires you to review your entire estate plan, including your foreign wills and beneficiary designations. An outdated plan can lead to assets going to an ex-spouse or omitting a new child.
Ignoring Beneficiary Designations: Beneficiary designations on accounts like life insurance or retirement plans override your will. If your will says one thing but an old beneficiary form says another, the form wins.
Choosing the Wrong Executor: Naming an executor who is not organized, lives far away, or does not get along with the beneficiaries can cause chaos. For an international estate, it is critical to name someone willing and able to work with foreign lawyers and navigate bureaucracy.
Failing to Fund a Trust: If you use a trust, you must legally transfer your assets into it (a process called “funding”). An empty trust is useless and will not avoid probate.

Frequently Asked Questions (FAQs)

1. Do I have to pay U.S. taxes on a foreign inheritance? No. You do not pay U.S. income tax on the value of the inheritance when you receive it. However, you must report it to the IRS, and any future income it generates is taxable.

2. Can I avoid ancillary probate with a U.S. living trust? No. Most foreign civil law countries do not recognize U.S. trusts. Trying to use one can create significant legal and tax problems, making the situation worse than simple ancillary probate.

3. What happens if I die without a will for my foreign property? The property will be distributed according to the “intestacy” laws of the country where it is located. These default rules may give the property to relatives you never intended to inherit it.

4. Do I need a lawyer in the foreign country? Yes, absolutely. A U.S. attorney cannot give legal advice on foreign law or represent your estate in a foreign court. Hiring qualified local counsel is not optional; it is essential for success.

5. Can my U.S. Power of Attorney be used to sell the foreign property? No. A Power of Attorney is only valid in the jurisdiction where it was created. You will need a separate Power of Attorney drafted and executed according to the laws of the foreign country.