Estate taxes for non-residents is not easy. Deceased nonresidents who were not American citizens are subject to U.S. estate taxation with respect to their U.S. situated assets.
U.S.-situated assets include American real estate, tangible personal property, and securities of U.S. companies. A nonresident’s stock holdings in American companies are subject to estate taxation even though the nonresident held the certificates abroad or registered the certificates in the name of a nominee.
Assets that are exempt from U.S. estate tax include securities that generate portfolio interest, bank accounts not used in connection with a trade or business in the U.S., and insurance proceeds.
Estate tax treaties between the U.S. and other countries often provide more favorable tax treatment to nonresidents by limiting the type of asset considered situated in the U.S. and subject to U.S. estate taxation. Executors for nonresident estates should consult such treaties where applicable.
Executors for nonresidents must file an estate tax return ( Form 706NA, United States Estate (and Generation-Skipping) Tax Return, Estate of a nonresident not a citizen of the United States) if the fair market value at death of the decedent’s U.S.-situated assets exceeds $60,000 ($60,000 is the “exemption equivalent” of the applicable unified credit of $13,000). If the decedent made substantial lifetime gifts of U.S. property, a U.S. estate tax return may be required even though the value of the decedent’s U.S. situated assets is less that $60,000 at the date of death.
However, the U.S. has estate and gift tax treaties with the following countries: Australia, Austria, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Netherlands, Norway, South Africa, Sweden, Switzerland, and the United Kingdom. Each of these treaties changes in some aspects the rules discussed above as it relates to estate and gift taxes for nonresident aliens who reside in these countries. Accordingly, nonresidents who live in these countries should review these treaties to determine the impact of estate taxes.