U.S. Gift and Estate Tax Rules for Non-Resident Aliens Owning U.S. Assets
Why non-resident aliens face significant U.S. estate tax exposure
Most people assume that U.S. estate and gift taxes apply only to U.S. citizens and residents. In fact, non-resident aliens (NRAs) — foreign nationals who are neither U.S. citizens nor U.S. domiciliaries — are subject to U.S. estate and gift tax on assets situated within the United States. And unlike U.S. citizens, who can shelter up to approximately $13.61 million from estate tax (in 2024), non-resident aliens receive only a $60,000 exemption from U.S. estate tax. The gap is staggering, and it catches many foreign investors and families by surprise.
What counts as a U.S.-situs asset?
For U.S. estate tax purposes, the assets includible in a non-resident alien's taxable estate are those situated in the United States at the time of death. Key U.S.-situs assets include:
• Real property located in the United States
• Tangible personal property physically located in the U.S. at death
• Stock of U.S. corporations — regardless of where the certificates are held or where the owner resides
• Debt obligations of U.S. persons, U.S. corporations, and U.S. government entities (with some exceptions)
• Interests in U.S. partnerships and certain U.S. LLCs
Notably, bank deposits at U.S. banks held by non-resident aliens are generally exempt from U.S. estate tax under a specific statutory exception — as are certain U.S. government obligations and proceeds of U.S. life insurance policies on the NRA's life. Foreign stocks, even if held in a U.S. brokerage account, are not U.S.-situs assets for estate tax purposes.
U.S. gift tax rules for non-resident aliens
The U.S. gift tax rules for non-resident aliens are narrower than the estate tax rules. NRAs are subject to U.S. gift tax only on gifts of tangible property situated in the United States — real estate and physical personal property. Gifts of intangible property, including U.S. stock, by a non-resident alien are generally not subject to U.S. gift tax. This creates an important asymmetry: a non-resident alien who owns U.S. stock can gift it without incurring U.S. gift tax, whereas that same stock would be subject to estate tax at death.
The domicile question
The distinction between "non-resident alien" and "U.S. domiciliary" is critical but often misunderstood. For estate and gift tax purposes, domicile is determined by intent — specifically, whether the individual is present in the United States with the intention to remain indefinitely. This is a facts-and-circumstances test that is separate from the income tax residency rules based on the substantial presence test or green card status. A foreign national who spends significant time in the U.S. may be treated as a U.S. domiciliary for estate tax purposes even without being a lawful permanent resident.
Planning strategies for non-resident aliens with U.S. assets
Given the very limited $60,000 exemption and the 40% top estate tax rate, careful planning is essential for non-resident aliens with meaningful U.S. asset holdings. Common strategies include holding U.S. real estate through a foreign corporation (which converts a U.S.-situs asset into a non-U.S.-situs foreign stock) rather than directly, using U.S. life insurance to provide liquidity for estate tax, and structuring gifts during lifetime to take advantage of the gift tax exemption for intangibles. U.S.-bilateral estate tax treaties with certain countries may also modify the default rules significantly.
If you are a foreign national owning U.S. real estate, stocks, or other U.S.-situs assets, U.S. estate tax planning is not optional — it is essential. Our attorneys work with non-resident alien clients and their advisors to implement efficient structures before exposure becomes a crisis. Contact us to discuss your situation.
