U.S. Estate Tax
1. Taxation based on citizenship and residence.
1.1 U.S. citizens and residents are subject to estate tax on all interests in property wherever located owned or controlled at death.
1.2 Individuals who are neither U.S. residents nor U.S. citizens (“non-resident aliens”) are only subject to U.S. estate tax on:
(a) Interests in “property deemed located in the United States” (“U.S. Property”) at the decedent’s death; or
(b) “U.S.-Property” transferred prior to death, but includable under IRC § 2035 (transfers within three years of death), § 2036 (transfers with a retained life estate), § 2037 (transfer taking effect at death), and § 2038 (revocable transfers). IRC §§ 2103-2105.
(a) An individual’s status as a citizen is determined by the Immigration and Naturalization Act (8 U.S.C. § 1101 et seq.), except that persons who are U.S. citizens solely by reason of having been a citizen of a U.S. possession either by birth or residence within the possession are treated as nonresident aliens for estate and gift tax purposes.
(b) Persons who gave up U.S. citizenship are subject to special estate and gift tax rules. See IRC §§ 2107, 2501.
(a) For U.S. estate and gift tax purposes, a resident is one who, at the time of his death or at the time of gift, is domiciled in the United States. An individual is a U.S. domiciliary if he lives in the United States, even for a brief period of time, with the intention to remain indefinitely. Treas. Reg. §§ 20.0-1(b)(1), 25.2501-1(b).
(b) Note: This concept is different from the income tax rules regarding residency. See IRC § 7701(b).
(1) For income tax purposes, an alien is considered a U.S. resident for a calendar year if: (i) the alien is a lawful permanent resident of the United States at any time during the calendar year, (ii) the alien meets the substantial presence test, or (iii) the alien makes a first-year election under IRC § 7701(b)(4).
(c) A non-resident alien could be domiciled in the United States and in one or several other countries. Treaties address in various ways the potential for double taxation of estates that may result.
(d) A number of treaties either leave the question of domicile to be determined under the local laws of the two countries or have no provision regarding domicile. Under such treaties, an estate may be subject to taxation of worldwide assets by two countries, but the tax authorities of the signatories all allow tax credits for taxes on property situated in the other country.