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transfer tax systems in the United States

However, while U.S. expats are free to open and fund 529 college savings accounts, they must be aware of the local country rules in their country of residence regarding the gains that will eventually accumulate within these accounts. From an income tax perspective, it is worth mentioning here that there are no treaties between the United States and any foreign jurisdiction that recognizes the tax-free growth of investments in 529 accounts (or Coverdell ESAs – another type of U.S. savings vehicle for education expenses allowing much smaller annual contributions). Therefore, it is quite possible that the expat individual will find that gifting through a 529 plan could create detrimental tax consequences, as the donor may potentially incur tax liability on any investment gains in the portfolio going forward (recognized or unrecognized gains, depending on the local tax rules). Alternative college savings or generational gifting strategies (including having U.S. based relatives open the 529 account) may work better for expats.Estate Planning For Families That Include a Non-U.S.-Citizen SpouseAmericans living abroad may accumulate more than income and assets while living and working abroad, they may also find love! Unfortunately, the tax complications and challenges facing American expats also extend to the circumstance of marrying a foreigner. Even if an expat’s spouse obtains U.S. permanent resident (“green card”) status, gifts and bequests to the non-citizen spouse are not eligible for the unlimited marital deduction. On the other hand, the $11.2 million (2018) lifetime exclusion applies to bequests left to anyone, including a non-citizen spouse. For estates larger than the lifetime exclusion limit, alternative estate planning strategies may be required, two of which are discussed below.Lifetime gifting to the non-citizen spouse:First, although a citizen can give unlimited assets to a fellow citizen spouse during her lifetime, there is a special limit allowed for tax-free gifts to non-citizen spouses of $152,000 annually (2018). Accordingly, a gifting strategy can be implemented to shift non-U.S. situs assets from the citizen spouse to the non-citizen spouse over time, thereby shrinking the taxable estate of the citizen spouse. The nature, timing, and documentation of the gifts should be done with the assistance of a knowledgeable tax and/or legal professional.