Estate Tax for Foreigners with U.S. Situs Properties
If a non-US individual has properties that are situated in the US at the time of their death, such properties should be included in their gross estate and the transfer of such properties is taxable by the US government. Thus, for non-US individuals, to plan for their future US estate tax, it is important to determine whether their US-related properties are considered as US-situated properties.
Situs of Properties
According to the IRS, U.S.-situated properties include:
• Real estate properties located in the U.S.
• Tangible personal properties (excluding some art) and
• Shares of stock issued by a US corporation, regardless of whether the stock certificates are in the U.S. or not, are categorized as properties situated in the United States. (Conversely, stocks in a regulated investment company (as defined in section 851 of the Internal Revenue Code) are not deemed as property within the United States.) Non-US-situs properties include “certain deposits and debt obligations described in Section 871(g)-(i), bank accounts deposited with a foreign branch of a domestic commercial banking business, and proceeds of life insurance on the life of a nonresident who is not a U.S. citizen.”
Tax Treatments And Filing Requirements
In absence of a treaty, estate of a non-US alien individual is allowed a unified credit of $13,000, which means that such estate can transfer $60,000 worth of US-located property without tax. The exempted amount for a non-U.S. person’s estate is significantly lower than that for a U.S. person’s estate. However, if an estate tax treaty is available, a foreign estate with U.S. assets may invoke the provisions of such treaty under certain circumstances to mitigate their U.S. estate tax liabilities. Currently, the United States has estate tax treaties with Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands. South Africa, Switzerland, and United Kingdom.
When the U.S.-situated properties in a foreign estate exceeds $60,000, the executor is required to file Form 706-NA within nine months of the date of the decedent’s death. When filing Form 706NA, the executor of the estate is recommended attach the following documents:
• A certified copy of the will, if there is one
• A copy of the decedent’s death certificate
• For stocks in a closely held corporate, the balance sheets and statements of the net earning or operating results and dividends paid for each of the 5 preceding years.
• U.S. gift tax return(s) filed by the decedent if any
• An English translation to all documents in other languages