US Estate Tax Trap for Non-US Persons

By Craig Thompson,

Consideration of local estate taxes is a central responsibility for executors in most jurisdictions. In cases where the decedent held US assets, even if they were not a US citizen, domiciliary or lawful permanent resident, there is also an added complication in that US estate taxes too must be taken into account.

What might be taxable?

Unlike US citizens, who are taxed on their worldwide assets, non-resident aliens (NRAs) are taxed only on certain categories of US situs assets. A thoroughgoing examination of what constitutes a US situs asset is beyond the scope of this post but the following is a list of some of the most common types:

~ US situs real property (Treasury Reg. 20.2104-1 (a)(2)).

~ Shares in US corporations (IRC 2106(a)).

~ Tangible personal property such as jewellery, cars, artworks etc. (Treasury Regulation 20.2104-1 (a)(2)).

~ Interests in partnerships that that do business in the US or in partnerships or Trusts that own US situs assets

~ Bank accounts connected to a US trade or business

~ Cash in a deposit box located in the US (IRC 2104(c))

Regular US bank accounts not connected to a US trade or business are not regarded as US situs assets for estate tax purposes. Shares in a foreign corporation, even if the corporation has substantial interests and real property in the US is also not regarded as a US situs asset.

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