Non-US client with US-situs assets
A non-US client can hold significant US investments without being a US citizen or US tax resident.
That can create a very different estate-tax position from the one that applies to US persons.
US-listed shares, certain US securities and other US-situs assets may create potential US estate-tax exposure on death, even where the client lives permanently outside the United States.
Josh Clancey works alongside US tax advisers, estate-planning attorneys and other professionals where a non-US client's US assets need to be reviewed within a wider cross-border financial and estate plan.
The estate-tax rules for non-US persons are materially different
For US estate-tax purposes, a person who is neither a US citizen nor domiciled in the US can still be subject to US estate tax on certain US-situs assets.
The most important point is that the exclusion available to nonresident non-citizens is significantly lower than the exemption available to US citizens and domiciliaries.
Under current US rules, a US estate-tax return can generally be required where the value of US-situs assets exceeds $60,000 at death.
That makes relatively modest US investment portfolios potentially relevant from an estate-planning perspective.
The US tax or estate adviser should establish:
- whether the client is treated as a nonresident non-citizen
- which assets are US-situs
- whether a treaty applies
- whether any deductions or credits are available
- the likely estate-tax exposure
Financial planning can then address whether the asset structure remains appropriate.
Common planning areas for non-US clients with US-situs assets
US-listed shares
Shares in US corporations can generally be treated as US-situs property for estate-tax purposes.
That can create exposure even where the client lives outside the US.
US brokerage accounts
The location of the brokerage firm is not the only issue.
The underlying assets need to be analysed to determine whether they are US-situs for estate-tax purposes.
US retirement accounts
Certain retirement assets may have their own tax and estate considerations and should not automatically be grouped with ordinary brokerage investments.
Estate-tax treaties
Some countries have estate or death-tax treaties with the US that can materially alter the result.
That needs specialist review.
Beneficiaries
The client's intended beneficiaries may live in different countries and may themselves have US connections.
That can add another layer to the planning.
Concentrated US exposure
A client may hold a large portion of their wealth in US securities because of long-term investment performance, employer shares or familiarity with US markets.
Questions to ask when a non-US client holds US assets
Is the client a US citizen, Green Card holder or otherwise US domiciled?
The estate-tax analysis changes materially depending on the client's status.
What US assets does the client actually own?
US-listed shares, funds, retirement accounts and cash should be identified separately.
Which assets are US-situs?
That is a specialist US estate-tax question.
Is the total US-situs exposure above $60,000?
That threshold can become relevant for filing and estate-tax purposes for nonresident non-citizens.
Does an estate-tax treaty apply?
Treaty relief can materially alter the outcome.
Who are the intended beneficiaries?
Their residence and citizenship may affect the wider estate plan.
Can the investment objective be achieved with a different structure?
If the client has unnecessary US-situs exposure, financial planning can consider whether the same investment objective can be achieved in a more estate-efficient way.
Useful resources for advisers working with US-situs asset cases
US Estate Tax Exposure for Non-US Persons With US-Situs Assets
A focused technical brief covering the estate-tax issues that can arise where a non-US person holds US property or securities.
The Professional Adviser's Guide to US-Situs Assets and Estate Tax Exposure
A broader guide to recognising and coordinating US estate-tax exposure for internationally mobile clients.
The Professional Adviser's Guide to Cross-Border Estate and Beneficiary Planning
A wider guide to coordinating assets, beneficiaries and estate-planning issues across jurisdictions.
Cross-Border Beneficiary and Estate Coordination
A technical brief covering the interaction between investments, pensions, beneficiaries and international estates.
International Estate Planning Coordination Checklist
A practical checklist for reviewing assets, beneficiaries, estate exposure and liquidity across jurisdictions.
Cross-Border Referral Checklist
A practical checklist for identifying where specialist estate, tax or financial-planning input may be required.
The $60,000 threshold is what makes this issue easy to overlook
The US estate-tax exemption for nonresident non-citizens is dramatically lower than the exemption generally available to US citizens and domiciliaries.
Under current rules, Form 706-NA can generally be required where the gross value of US-situs assets exceeds $60,000 at death.
That means a client does not need to be ultra-high-net-worth before the issue becomes relevant.
A non-US client could hold:
- a US brokerage account
- shares in US companies
- a concentrated employer holding
- US-listed securities
and still have a meaningful estate-tax exposure.
This is why the issue should be identified during investment planning rather than only after death.
The planning question is whether the US-situs exposure is necessary
Once the tax adviser confirms the estate-tax position, the financial-planning question becomes:
Does the client need to hold these assets in this form?
The answer may be yes.
But the review can consider:
- whether the investment objective can be achieved through non-US-situs assets
- diversification
- liquidity
- custody
- currency
- retirement objectives
- estate planning
- beneficiary needs
- product costs
- legal ownership
For some clients, reducing unnecessary US-situs exposure can materially improve the estate position without changing the overall investment objective.
Any restructuring should be coordinated with the relevant US and local tax advisers before implementation.
When should the referral happen?
A referral can be useful where the client:
is not a US citizen
lives outside the US
holds substantial US-listed shares
has a US brokerage account
has a concentrated employer shareholding
may be exposed to US estate tax
has beneficiaries in several jurisdictions
needs to review estate liquidity
wants to reduce unnecessary US-situs exposure