CEA International Estate Considerations 3 — Questions and Answers
Question 1: A US citizen dies owning a vacation home in Mexico worth $800,000. Which US estate tax form is used, and is this property included?
- Form 706-NA; excluded because it is foreign property
- Form 706; included as part of the worldwide gross estate (Correct answer)
- Form 706; excluded under the foreign real property exemption
- Form 706-NA; included only if a treaty applies
Correct answer: Form 706; included as part of the worldwide gross estate
US citizens file Form 706, and their worldwide assets—including foreign real property—are included in the gross estate.
Question 2: What is 'forced heirship' and how does it affect US estate plans with foreign assets?
- A US rule requiring equal distribution among children
- A foreign law mandating minimum inheritance shares for certain relatives, overriding a will's instructions (Correct answer)
- An IRS rule forcing liquidation of foreign assets before probate
- A treaty provision forcing assets back to the country of origin
Correct answer: A foreign law mandating minimum inheritance shares for certain relatives, overriding a will's instructions
Forced heirship laws in countries like France and many civil-law nations require reserved portions for children, potentially overriding a US decedent's will for locally sited assets.
Question 3: A client holds shares in a foreign corporation that owns US real property. What US tax rule may cause the client to be treated as directly owning the underlying US real property?
- The controlled foreign corporation (CFC) rules
- The Foreign Investment in Real Property Tax Act (FIRPTA) look-through rules (Correct answer)
- The passive foreign investment company (PFIC) regime
- The treaty shopping anti-abuse rules
Correct answer: The Foreign Investment in Real Property Tax Act (FIRPTA) look-through rules
FIRPTA look-through rules can treat interests in foreign corporations that own US real property as direct US-situs assets for estate tax purposes.
Question 4: Which estate planning technique is commonly used to defer US estate tax when a non-citizen surviving spouse inherits a large estate?
- Charitable remainder trust (CRT)
- Qualified domestic trust (QDOT) (Correct answer)
- Spendthrift trust
- Intentionally defective grantor trust (IDGT)
Correct answer: Qualified domestic trust (QDOT)
A Qualified Domestic Trust (QDOT) allows the marital deduction for transfers to a non-citizen spouse by ensuring US estate tax is collected when distributions or upon the spouse's death.
Question 5: Which country is NOT a party to a bilateral US estate and gift tax treaty as of 2026?
- United Kingdom
- Germany
- Canada (Correct answer)
- Australia
Correct answer: Canada
Canada does not have a bilateral US estate and gift tax treaty; instead, cross-border estate issues are addressed through the income tax treaty and domestic law.
Question 6: A US client inherits a Swiss bank account from a foreign parent. What is the first compliance step the estate advisor should recommend?
- File Form 706 to report the inherited account
- Determine whether FBAR and FATCA reporting obligations are triggered (Correct answer)
- Transfer the funds to a US account within 30 days
- Report the account to the Swiss Financial Market Supervisory Authority
Correct answer: Determine whether FBAR and FATCA reporting obligations are triggered
FBAR (FinCEN 114) and FATCA (Form 8938) reporting requirements must be evaluated before any other steps when a US person inherits foreign financial accounts.
Question 7: When calculating US estate tax on a decedent's worldwide estate, a foreign death tax credit is available under IRC Section 2014. What is the primary limitation on this credit?
- It is limited to 50% of the foreign tax paid
- It cannot exceed the portion of US estate tax attributable to the foreign property (Correct answer)
- It only applies to real property, not financial assets
- It expires five years after the date of death
Correct answer: It cannot exceed the portion of US estate tax attributable to the foreign property
The IRC Section 2014 credit for foreign death taxes is limited to the lesser of the foreign tax paid or the US estate tax attributable to the same property.
CEA International Estate Considerations 3
A US citizen dies owning a vacation home in Mexico worth $800,000.
Which US estate tax form is used, and is this property included?