US Estate Tax for non-American owners of US assets

US Estate Tax for non-US domiciliaries

If you’re a non-US domiciliary, you’re subject to US estate on the transfer of US situated property, which may include both tangible and intangible assets owned at the decedent’s date of death and gift taxation on certain types of US assets at up to 40%. However, your exemption at only $60,000 is much lower than that of US domiciliaries. This exception is not indexed for inflation and the exemption is only available for transfers at death. 

Because the non-US domiciliary exemption is much lower than for a US domiciliary, many people with US assets could be within the scope of US estate and gift tax. 

As a non-US domiciliary, you’re taxed on the value of your US situs assets. Here are some of the most common US assets  subject to US Estate Tax:

• US situs real estate property
• Shares in US corporations
• Tangible personal property
• Interests in partnerships that do business in the US
• Partnerships or grantor type trusts that own US situs assets
• Bank accounts connected to a US trade or business (but not personal bank accounts)
• US pension plans such as IRAs

US Estate Tax relief and exemptions  

It’s possible to be domiciled in more than one country. Where this is the case, there may be an Transfer Tax treaty that can be relied upon to reduce US Estate Tax exposure, or at least prevent double Estate Tax exposure. Relief may also be available for any US Estate Tax paid as a credit against the Estate Tax of other country.  There are only a select few countries that have a transfer tax treaty with the US.

An unlimited exemption is available for US situs assets transferred to a US citizen spouse. If the spouse is not a US domiciliary, a special vehicle known as a Qualified Domestic Trust could be established, which would allow for a deferral of the Estate Tax due until the death of the surviving spouse or a capital payment is made from the trust.

US Estate Tax administrative forms

If the date of death value of the decedent’s US situated assets, together with the gift tax specific exemption and the amount of the adjusted taxable gifts, exceeds the filing threshold of $60,000, the executor must file a Form 706-NA for the decedent’s estate. Form 706-NA is required to be filed within nine months of the date of death. An extension effective for six months is available by filing Form 4768.

When the non-resident Estate Tax return has been processed, an Estate Tax Closing Letter will be issued. In some case, US assets will not be released to beneficiaries until this has been issued  A Transfer Certificate should be requested by faxing to the IRS the estate’s filed Form 706-NA and all additional sheets used to report Schedule A property.

What should you do?

If you’re a non-US domiciliary holding US assets or an executor of an estate containing US assets, you should check the US tax liability and plan ahead to benefit from any available US Estate Tax relief. 

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