American Estate Planning & Inheritance in Spain — US/Spain Coordinated

American expats in Spain sit at the intersection of two of the more unusual tax systems in the world. The United States is the only major country (alongside Eritrea) that taxes its citizens on worldwide income and imposes Federal gift and estate tax on worldwide transfers regardless of where the citizen lives. Spain taxes residents on worldwide inheritance under whichever autonomous community rules apply, and non-residents on Spanish-situated assets. There is no US/Spain inheritance or estate tax treaty — unlike the US/UK or US/France treaties which provide clean coordination. The income tax treaty between Spain and the US does not extend to estate or gift tax.

This absence of a treaty creates specific technical problems: no treaty-based credit mechanism between US Federal estate tax and Spanish IHT, no tie-breaker rule for domicile/situs conflicts, and no coordinated relief against double taxation. In practice, planning works because: (1) US Federal estate tax has a very high exemption (approximately $13.6m per individual for 2024–2025, scheduled to sunset back to ~$7m in 2026 absent legislation), so most American expats do not pay Federal estate tax at all; (2) Spanish IHT on post-reform regional regimes is near zero for Group I/II beneficiaries in most regions; (3) unilateral credit provisions in both US and Spanish law provide some relief in the cases where both taxes apply.

The civil-law planning is simpler: Brussels IV allows a US citizen habitually resident in Spain to elect the law of their US state of nationality on their Spanish will. Under most US state laws, testamentary freedom is near-absolute, so the election effectively removes Spanish forced heirship from the Spanish estate. The practical effect is equivalent to the British expat Brussels IV election.

This page covers US/Spain tax interaction, state-law considerations for estate planning, the FBAR and FATCA reporting obligations that follow Americans abroad, coordinated wills, and the probate workflow. If you are a US citizen or green-card holder living in Spain, open a file with us.

Double taxation — when both US and Spanish IHT apply

In most American expat cases, one tax dominates. For a mid-estate (under $7m total) American expat with Spanish property in Madrid, Federal estate tax is zero (below exemption), Spanish IHT after Madrid's 99% bonificación is near zero, and the combined bill is nominal. For a high-estate (over $13.6m) American expat in Marbella, Federal estate tax may apply at 40% above the exemption, Andalusian IHT on Spanish-situated property may be near zero post-reform, and the Federal bill dominates. For an American expat who has become Spanish tax resident with substantial non-Spanish assets, Spanish worldwide taxation applies — and the Federal estate tax may or may not apply depending on estate size. Relief mechanics: the US allows a credit for foreign death taxes on foreign-situated assets under IRC Section 2014, but only where the Federal estate tax actually applies (i.e., estate above exemption). Spain's Article 23 unilateral credit allows foreign IHT paid on Spanish-situated assets to be credited against Spanish IHT — but post-reform Spanish IHT is often near zero, so the credit has little effect.

The "green-card holder" trap

US green-card holders (lawful permanent residents) are treated as US citizens for Federal estate and gift tax purposes regardless of their physical location. An LPR who moves to Spain, retains the green card, and dies in Spain will have their worldwide estate subject to US Federal estate tax. Green-card holders considering move to Spain should plan either to formally surrender the green card (with potential expatriation tax under Section 877A if long-term resident) or accept continued US Federal estate tax exposure. We flag this at intake on every green-card file.

US retirement accounts — 401(k), IRA, Roth IRA

US retirement accounts held by American expats in Spain create specific tax issues during life and at death. During life: Spanish tax residents are generally taxed by Spain on 401(k)/IRA income when distributed, with a US tax treaty credit for US withholding. Spain does not recognise the tax-free character of Roth IRAs — growth and distributions may be taxable in Spain despite being tax-free in the US. At death: US retirement accounts pass under US beneficiary designation, outside probate, but may engage Federal estate tax (included in the taxable estate) and Spanish IHT (for Spanish-resident heirs inheriting under beneficiary designation). The structure matters.

US real estate retained — situs issues

American expats commonly retain US real estate: a Florida condo, a California home, a family property. US-situated real estate is included in the US Federal estate (no change), engages state estate tax if the state has one, and engages Spanish IHT if the deceased was Spanish tax resident (worldwide basis) subject to Article 23 credit. For the non-Spanish-resident American expat dying in Spain (short-term basis), only the Spanish-situated assets engage Spanish IHT; the US real estate sits entirely in the US tax net.

Digital nomads and the Beckham Law

American citizens who move to Spain under the Digital Nomad Visa (DNV) and opt into the Beckham Law regime receive a modified Spanish tax treatment for up to six years: taxed as non-residents on Spanish-sourced income only (typically 24% flat rate up to €600,000) with non-worldwide treatment. This substantially reduces Spanish income tax burden during the DNV period. However, the Beckham Law does not modify Spanish IHT treatment — which means a Beckham-electing American who dies during the Spanish tax residency period is still treated as Spanish-resident for IHT purposes, with worldwide IHT exposure at Spanish regional rates. Planning around this matters for American DNV holders with substantial non-Spanish assets.

PFIC risk — Spanish investment funds

American citizens who invest in non-US mutual funds or ETFs (including most Spanish funds) face the Passive Foreign Investment Company (PFIC) regime under US tax law: punitive tax treatment, complex annual reporting (Form 8621), and effectively prohibitive tax on any fund gains. Many Spanish-resident Americans accidentally invest in Spanish UCITS funds through Spanish banks and unwittingly engage PFIC — discovering the issue years later when filing catches up. Planning: American expats in Spain should hold investments through US brokerage accounts (IBKR, Schwab International, etc.) in US-domiciled ETFs where available. We flag PFIC on every intake.

Probate mechanics — state probate plus Spanish notary

US probate varies by state. Some states have streamlined informal probate; others require full formal probate with court supervision. Digital probate filing, non-probate transfer (payable-on-death, transfer-on-death), living trusts, and other US-style estate planning structures largely do not translate into Spanish probate. Spanish-side probate still runs through the notary, requiring a Spanish will or US will translated and apostilled, plus a US state grant or equivalent certificate. We coordinate with US counsel on every file — typically the client's existing US estate attorney handles the US side while we handle the Spanish side.

US revocable living trusts and Spain

Revocable living trusts are a common US estate-planning tool: the grantor transfers assets to the trust during life, retains control as trustee, and the trust owns the assets at death (passing to named beneficiaries outside probate). Spain does not recognise US trusts cleanly. Spanish-situated assets held by a US revocable living trust may be treated by Spanish tax authorities as owned by the grantor (with Spanish IHT on death applying as if the grantor held directly) or alternatively as owned by the trust (with complex entity-level Spanish tax issues). We advise against holding Spanish property in a US revocable trust. US-situated assets can remain in trust; Spanish property should be held directly by the individual and pass under a Spanish will with Brussels IV election.