Expatriates and Their Estates

If you are a family member or friend of a Covered Expatriate and they happen to pass away and leave you an inheritance, that gift may be subject to tax; and in this case it is the recipient, not the decedent who pays that tax.

Under Internal Revenue Code §2801, a US recipient of a “covered gift or bequest” may be taxable at the highest estate tax rate in effect on the date of receipt, multiplied by the value of the gift or bequest. The highest US Estate Tax currently sits at 40%. So if you are to receive an inheritance valued at $1000 dollars from a “Covered Expatriate”, you are liable for $400 in US taxes.

The Treasury regulations also state that it is the US person receiving the “covered gift or bequest,” who is responsible for knowing that the decedent was a “Covered Expatriate”. The Regs. also state that a “US Recipient” includes a US citizen or a US domiciliary.