Deceased nonresidents who were not American citizens are subject to U.S. estate taxation with respect to their U.S. based assets. U.S. based 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.
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 alters the rules discussed above with respect to the application of the estate and gift taxes to nonresident aliens who reside in these countries and should, therefore, be reviewed before rendering any estate or gift tax advice for such persons.
Estate tax treaties between the U.S. and other countries often provide more favorable tax treatment to nonresidents by limiting the type of assets considered situated in the U.S. and subject to U.S. estate taxation. Executors for nonresident estates will need to examine 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. based assets exceeds $60,000 ($60,000 is the “exemption equivalent” of the applicable unified credit of $14,000). 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 than $60,000 at the date of death.