Legal and Estate Planning Rules for Every American Living Abroad

The idea of buying a home in a foreign country—where the lifestyle is slower, the climate milder, and the cost of living lower—is increasingly appealing to many Americans. Whether motivated by retirement, remote work flexibility, or the desire for a fresh start, more individuals are investing in overseas property in destinations like Portugal, Costa Rica, and Panama. However, navigating legal and estate planning rules for every American living abroad is essential. About 5.5 million Americans currently live abroad.¹

But purchasing real estate abroad is not simply a financial transaction. It comes with significant legal, tax, and estate planning implications that differ from those in the United States. Before signing a purchase agreement, it’s essential to understand the risks, responsibilities, and legal complexities of foreign property ownership.

Why More Americans Are Buying Property Overseas

The rising cost of living in the U.S. has prompted Americans to look for a better quality of life elsewhere. A 2024 Coldwell Banker report found that 40% of U.S. consumers with incomes over $1 million plan to buy property abroad in the next year, and two-thirds are considering it within five years.² Remote workers and retirees are increasingly drawn to countries where their dollars stretch further. In places like Belize, monthly living expenses can be as low as $2,000.³ Costa Rica, known for its quality healthcare system, offers hospital care at half the cost of U.S. facilities.⁴

Navigating Uncharted (Legal) Territory

The excitement of a new life abroad can quickly be tempered by unfamiliar laws and regulations. Owning property in a foreign country means navigating a legal and tax system that may bear little resemblance to U.S. norms. Some nations restrict foreign ownership entirely or impose registration hurdles. Others limit how the property can be used or transferred. Understanding these nuances can help in navigating legal and estate planning rules for every American living abroad.

Understanding these differences is essential for avoiding costly missteps. Key areas to evaluate are tax responsibilities and estate planning considerations.

Tax Responsibilities

U.S. citizens are taxed on their worldwide income and assets, including foreign real estate. In addition to U.S. estate and capital gains taxes, you may face taxes in the country where the property is located. These might include:

• Property taxes (similar to U.S. local property taxes)
• Income taxes on rental income
• Capital gains taxes upon sale
• Wealth taxes (e.g., Portugal’s AIMI on high-value real estate)
• Deemed income taxes (e.g., Spain taxes owners as if their vacant property earns rental income)
• Specific business taxes (e.g., Thailand’s SBT on property resold within five years)

If you earn rental income or sell the property, U.S. tax reporting obligations may include:

• FBAR (FinCEN Form 114) for foreign bank accounts tied to the property
• Form 5471 or 8858 if the property is held in a foreign corporation or branch

You may be eligible for foreign tax credits on your U.S. return, helping to offset taxes paid abroad and avoid double taxation.

Estate Planning Across Borders

U.S. wills and trusts may not be recognized abroad. Many countries require estate planning documents to meet local formalities—such as being written in the local language or signed before a notary.

In civil law countries like Portugal, Italy, and Chile, trusts are often not recognized at all. A properly drafted U.S. trust may be ignored entirely for purposes of distributing foreign real estate.

International wills created under the 1973 Washington Convention may offer a solution if the destination country participates in the treaty. Some U.S. states, including California and New York, allow for the creation of these wills.

Additionally, some countries enforce forced heirship laws. These laws mandate that certain heirs—typically spouses and children—receive a fixed share of your estate regardless of your wishes. For example:

• Germany’s Pflichtteil law entitles spouses and children to half of their statutory share
• Portugal, Brazil, and Italy enforce similar inheritance protections

If forced heirship is a concern, consider buying property in jurisdictions like the U.K., Ireland, or certain Caribbean nations where testamentary freedom more closely resembles U.S. norms.

Know When to Ask for Help

Buying a property overseas is more than a real estate transaction—it’s a cross-border legal and financial commitment. It’s important to seek guidance from knowledgeable professionals in both the U.S. and the country where the property is located. Dual legal counsel can help coordinate your purchase with tax, titling, and estate planning considerations in mind.

Final Takeaway

The dream of owning a home abroad is attainable—but it requires careful planning and legal awareness. Before making that purchase, be sure to:

• Understand both U.S. and foreign tax and reporting obligations
• Learn whether your estate plan will be honored abroad
• Research local property laws and ownership restrictions
• Know whether inheritance rules will impact how your property is passed on

The right information—paired with advice from trusted local and U.S.-based advisors—can make your overseas investment a rewarding and secure part of your long-term legacy.

1. Doris L. Speer, How Many Americans Live Abroad?, AARO (Oct. 2024), https://www.aaro.org/living-abroad/how-many-americans-live-abroad. ↩︎
2. The Trend Report, p. 59, ISSUU (Jan. 13, 2024), https://issuu.com/thereportgroup/docs/cbgl_-_the_trend_report_2024_4f0b3bedd1e4ff. ↩︎
3. Gabriela Peratello, Cost of Living in Belize: your 2021 guide, Wise (July 13, 2021), https://wise.com/us/blog/cost-of-living-in-belize. ↩︎
4. Christy Lowry, The cost of living in Costa Rica vs the U.S., Western Union (June 4, 2024), https://www.westernunion.com/blog/en/us/the-cost-of-living-in-costa-rica-vs-the-united-states. ↩︎