Should Foreign Nationals with U.S. Assets Use a Revocable Trust, Irrevocable Trust, or ILIT?
If you’re a foreign national with assets in the U.S., you might be wondering:
Do I need a trust to protect my wealth?
Will my assets be taxed in both the U.S. and my home country?
What happens if I don’t have any trust in place?
The short answer? Yes, a trust is essential if you want to minimize taxes, avoid legal complications, and ensure a smooth transfer of your wealth. But which trust is right for you—a revocable trust, irrevocable trust, or an ILIT (Irrevocable Life Insurance Trust)? Let’s break it down.
Why Foreign Nationals Need a Trust for U.S. Assets
Unlike U.S. citizens and residents, foreign nationals face a much lower estate tax exemption. While U.S. citizens can pass up to $13.61 million (as of 2024) estate tax-free, foreign nationals only get $60,000 before a 40% U.S. estate tax kicks in.
What happens if you have no trust?
If you pass away while holding U.S. assets worth more than $60,000, your heirs could lose up to 40% of those assets to estate taxes.
Your assets might go through U.S. probate court, which can be time-consuming, expensive, and complicated—especially for heirs who don’t live in the U.S.
Your home country might also tax your U.S. assets, depending on its tax treaties with the U.S.
A well-structured trust can solve these issues—but the right type depends on your goals.
Option 1: Revocable Trust – Flexibility, But No Tax Benefits
A revocable trust allows you to place your U.S. assets into a trust without giving up control. You can modify, add, or revoke it at any time.
Pros:
✅ Avoids probate, making asset transfer much easier for heirs
✅ Keeps control—you can change beneficiaries or move assets anytime
✅ Maintains privacy—assets transfer without becoming public record
Cons:
❌ No estate tax protection—assets are still counted as yours
❌ Still taxed in both the U.S. and possibly your home country
Best for: Foreign nationals who want to simplify inheritance but are not concerned about U.S. estate taxes.
Option 2: Irrevocable Trust – Asset Protection & Estate Tax Reduction
With an irrevocable trust, assets are transferred out of your personal ownership and into the trust. This means they are not counted as part of your taxable U.S. estate.
Pros:
✅ Avoids U.S. estate taxes (if structured correctly)
✅ Protects assets from lawsuits and creditors
✅ Avoids probate and simplifies inheritance for foreign heirs
Cons:
❌ Irrevocable—once you put assets in, you can’t take them back
❌ Gift tax may apply when transferring assets into the trust
Best for: Foreign nationals with significant U.S. assets who want tax protection and don’t mind giving up direct ownership.
Option 3: ILIT – Maximizing Life Insurance Benefits Without Estate Taxes
An Irrevocable Life Insurance Trust (ILIT) is specifically designed to hold U.S. life insurance policies, ensuring the payout is completely tax-free for your heirs.
Pros:
✅ Life insurance payout is NOT subject to U.S. estate tax
✅ Keeps money out of probate for a smooth transfer
✅ Can be structured to avoid home country taxation
Cons:
❌ Cannot change beneficiaries or control the policy once it’s in the trust
❌ Must set it up before purchasing the policy to avoid taxation
Best for: Foreign nationals using U.S. life insurance for wealth transfer, especially if they have other taxable U.S. assets.
How U.S. Trusts Affect Taxes in Your Home Country
Just because you protect your U.S. assets with a trust doesn’t mean you escape taxation in your home country. Here’s what to consider:
Some countries recognize U.S. trusts, some don’t. If your home country does not recognize your U.S. trust, you could still be taxed as if the assets were personally owned.
Double taxation risks. If your country has no tax treaty with the U.S., you might face U.S. estate tax AND local inheritance tax.
Gift tax concerns. Moving assets into an irrevocable trust might trigger gift tax rules in your home country.
💡 Solution: Work with an international estate planning expert who understands both U.S. and foreign tax laws.
Final Thoughts: Which Trust Should You Choose?
If you want flexibility but aren’t worried about U.S. estate tax: → Revocable Trust
If you have significant U.S. assets and want to avoid U.S. estate tax: → Irrevocable Trust
If you’re using U.S. life insurance for wealth transfer: → ILIT
For foreign nationals, trusts aren’t just a luxury—they are a necessity for protecting wealth and avoiding unnecessary taxation. A well-structured plan can mean the difference between your heirs inheriting your full legacy or losing nearly half of it to taxes.
