How Do U.S. Estate Tax Treaties Protect Non-Resident Property Owners?

Non-resident aliens (NRAs) who own U.S. property face federal estate tax at rates up to 40% on U.S.-situs assets above a $60,000 exemption, far below the $13.99 million exclusion for U.S. citizens. U.S. estate tax treaties with 16 countries can dramatically increase the effective exemption, prevent double taxation, and grant access to the marital deduction.

The NRA estate tax problem without a treaty:

How treaties help:

• Pro-rata unified credit: Many treaties (including the UK, Canada, Germany, and France) grant NRAs a share of the full U.S. unified credit proportional to their worldwide estate. If U.S. assets are 10% of a $5 million worldwide estate, the effective exemption rises well above $60,000
• Situs rules modified: Some treaties exempt certain assets (bank deposits, debt obligations) from U.S. estate tax
• Double tax relief: Credits for estate tax paid in either country on the same assets
• Marital deduction access: Several treaties extend the unlimited marital deduction to non-citizen surviving spouses without requiring a QDOT

Countries with U.S. estate and/or gift tax treaties:

• Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, Norway, South Africa, Switzerland, United Kingdom

Planning considerations for NRAs:

• Review treaty provisions before purchasing U.S. real estate or stocks
• Consider holding U.S. property through structures that may shift situs (with professional guidance)
• File Form 706-NA to claim treaty benefits; the treaty election must be made on the return

For estate and inheritance planning, see our Estate Planning and Inheritance Taxes Abroad.