A non-resident alien who dies owning US assets faces US estate tax with only a $60,000 exemption - not the $15,000,000 available to US citizens and domiciliaries under OBBBA. That is not a typo. A foreign national who owns a $2 million Manhattan apartment, a brokerage account holding US stocks, or an interest in a US LLC can generate a six-figure US estate tax bill at death, paid by their heirs. Most foreign investors in US assets do not know this tax exists. The ones who do often fail to plan for it until it is too late.
US citizen or domiciliary: $15,000,000 federal estate tax exemption (OBBBA, IRC §2010). Assets worldwide are included in the gross estate.
Non-resident alien (NRA): $60,000 federal estate tax exemption (IRC §2102(b)). Only US-situs assets are included in the gross estate. The rate above the exemption is the same 40%.
The estate tax definition of "non-resident alien" is different from the income tax definition. For estate tax purposes, the key concept is domicile - not residency, not the substantial presence test, and not green card status. IRC §2209; Treas. Reg. §20.0-1(b)(1).
A person is domiciled in the US for estate tax purposes if they are living in the US with no present intention of leaving. Domicile is established by physical presence plus intent to remain. It is difficult to establish unintentionally - a short-term visa holder or snowbird generally does not acquire US domicile. But a long-term green card holder who has made the US their permanent home may be treated as US-domiciled for estate tax purposes even if they are a citizen of another country.
Unlike US citizens whose worldwide estate is taxable, NRA estates are taxed only on US-situs assets - property legally situated in the United States at death. The situs rules are set by statute (IRC §2104-2105) and create some important distinctions.
| Asset Type | US Estate Tax for NRA? | Authority |
|---|---|---|
| US real property (land, buildings) | Included - US situs | IRC §2104(a) |
| US corporate stock (domestic corporations) | Included - US situs | IRC §2104(b) |
| Debt obligations of US persons / US government | Included generally | IRC §2104(c) |
| Cash on deposit at US banks (non-trade, non-business) | Excluded - statutory exception | IRC §2105(b)(1) |
| Proceeds of US life insurance on NRA's life | Excluded | IRC §2105(a) |
| Foreign corporate stock (even if held in US brokerage) | Excluded - foreign situs | IRC §2105 |
| US Treasury obligations (portfolio debt) | Excluded for NRAs | IRC §2105(b)(3) |
| US bank deposits at US branches | Excluded if interest would be portfolio interest-exempt | IRC §2105(b)(1) |
| Partnership interests in US partnerships | Included to extent of US-situs assets held | Treas. Reg. §20.2104-1 |
| LLC interests in US LLCs | Included - treated as corporate stock or partnership | Entity classification rules |
| US real property held through foreign corporation | Excluded (foreign stock) but FIRPTA applies to income | IRC §2104(b); planning trap |
The biggest surprise for foreign investors is that US corporate stock is US-situs property included in the NRA's gross estate - regardless of where the shares are physically held, where the brokerage account is located, or where the investor lives. A Russian investor holding Apple or Amazon stock in a Swiss brokerage account has US estate tax exposure on those shares. The stock is US-situs because Apple and Amazon are US domestic corporations. IRC §2104(b).
A common planning technique is to hold US assets through a foreign corporation rather than directly. Because shares of a foreign corporation are foreign-situs property (IRC §2104(b) includes only domestic corporations), they are excluded from the NRA's US gross estate. This can effectively remove US real estate, US stocks, and other US assets from the NRA estate tax base by wrapping them in a foreign entity.
This planning works for estate tax purposes, but it creates income tax and FIRPTA complications. A foreign corporation holding US real property is a US Real Property Holding Corporation (USRPHC) - sales of USRPHC stock are subject to FIRPTA withholding under IRC §897(c). The corporation pays US corporate income tax on US-source income. Earnings stripping via intercompany debt is constrained by IRC §163(j) and the anti-conduit rules. The planning is legitimate but requires careful structuring and ongoing compliance.
The NRA estate tax exemption is $60,000 under IRC §2102(b)(1). This amount has not been indexed for inflation and has been $60,000 since 1988. After the $60,000 exemption, the tax rate is the same graduated schedule as for US citizens - topping out at 40% on amounts above $1 million above the exemption. In practice, most NRA estates large enough to have US-situs assets worth mentioning immediately hit the 40% rate.
There is no marital deduction for transfers to a non-US citizen surviving spouse at death (same as the gift tax rule for non-citizen spouses). IRC §2056(d). The estate must use a Qualified Domestic Trust (QDOT) under IRC §2056A to obtain the marital deduction - and the QDOT pays estate tax as distributions are made from the trust to the non-citizen surviving spouse.
The US has estate and gift tax treaties with a number of countries that substantially improve the NRA's position. These treaties typically provide one or more of the following:
Countries with US estate/gift tax treaties include (among others): Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, Norway, South Africa, Switzerland, and the United Kingdom. The specific benefits vary significantly by treaty. The US-Russia treaty covered estate tax but is currently suspended for most provisions.
The estate of an NRA with US-situs assets is required to file Form 706-NA (United States Estate Tax Return - Estates of Nonresident Not a Citizen) within 9 months of the date of death. An automatic 6-month extension is available by filing Form 4768 before the due date.
Key items on Form 706-NA: gross US-situs assets at fair market value on the date of death; deductions (debts, expenses, and the portion attributable to US assets); marital deduction (if applicable through QDOT); charitable deduction; the $60,000 exemption; and any treaty-based adjustments. The estate tax is due with the return (not extended with the filing extension).
The options available to reduce NRA estate tax exposure depend on how the assets are held and the investor's treaty country of residence:
NRAs are exempt from US gift tax on gifts of intangible property - including US stocks, partnership interests, and LLC interests. IRC §2501(a)(2). But those same assets are included in the US estate at death. This creates a window: gifting US stocks during lifetime completely eliminates both US gift tax and future US estate tax on those assets. The gift does, however, transfer the NRA's carryover basis in the stock to the donee (IRC §1015), potentially creating a capital gains tax liability for the donee when they sell.