Investing in U.S. shares has become increasingly common among non-U.S. residents because of the growth opportunities offered by large American companies. However, many foreign investors are unaware that U.S. shares owned at the time of death may be subject to U.S. estate tax. For estate tax purposes, shares of U.S. corporations organized in or under U.S. law are generally treated as U.S.-situated assets, even when the shareholder is a nonresident noncitizen of the U.S. and holds the investments through a foreign brokerage account. The location of the investor is not the determining factor—the nature of the asset is.Â
What Assets Are Subject to U.S. Estate Tax?
U.S.-situated assets can include shares of U.S. companies, U.S. real estate, certain U.S.-domiciled investment funds, such as ETFs and mutual funds, and tangible assets physically located in the United States. On the other hand, some assets, such as deposits with a U.S. bank if the deposit is not effectively connected with conducting a trade or business within the U.S., and life insurance proceeds, are generally not subject to U.S. estate tax in the estate of a nonresident noncitizen of the U.S.Â
The $60,000 Estate Tax Exemption
Unlike U.S. citizens and residents, absent a treaty with the U.S. providing otherwise, nonresident noncitizens receive only a limited estate tax exemption of $60,000 on U.S.-situated assets. If the gross value of U.S. assets exceeds this threshold at the time of death, the estate would be required to file Form 706-NA, the U.S. estate tax return for nonresidents, and taxes could apply on the amount above the exemption. Depending on the size of the estate, the tax rate can be significant and may reach up to 40%.Â
What Happens After Death?
After the investor’s death, the brokerage account is usually frozen until the heirs or executor provide the required legal and tax documentation. In some cases, the IRS filing process can delay the transfer of assets to beneficiaries. This often creates practical difficulties for families who may not be familiar with U.S. tax procedures.Â
As mentioned above, some countries have estate tax treaties with the U.S. that may provide additional relief or higher exemptions. However, treaty benefits depend on the investor’s country of residence and the specific terms of the treaty.Â
Planning Ahead Can Reduce Risk
Proper estate planning can help reduce complications and potential tax exposure. Many international investors review alternative holding structures, non-U.S. investment options, or various estate planning strategies to manage their U.S. estate tax risk. Understanding these rules can help families avoid unexpected tax liabilities and administrative challenges in the future.Â
The application of U.S. estate tax rules depends on the type of assets you own, your country of residence, and whether an applicable tax treaty exists. For more information about how these rules may affect your situation, contact a WG advisor.
