Updated for 2024: Estate and Gift Tax Chart for Non US Persons (Greencard Holders and NRA’s)

Persons who are not United States citizens, such as nonresident aliens and greencard holders, face a challenging United States estate tax planning environment when they invest in United States assets. Instead of the $13,610,000 (exemption amount for 2024 that is indexed to inflation), to which United States citizens and permanent residents (greencard holders) are entitled, a nonresident alien is entitled to an exemption of only $60,000 for their United States property. Permanent residents of the United States, while entitled to the entire estate tax exemption for the United States estate tax (which is indexed for inflation and is $13,610,000 million for 2024), are subject to United States estate tax on their worldwide assets, including assets held in the home country. Both nonresident aliens and greencard holders may also be subject to estate tax in their country of citizenship, raising the issue of double taxation.

The current rate of taxation for taxable gifts and bequests is 40% at the Federal level.  Amounts gifted beyond the annual gift exclusions and beyond the lifetime applicable exclusion would be taxed at that rate.  Likewise, at death, any taxable bequest beyond the lifetime applicable exclusion is taxed at 40%.  Not every gift or bequest is taxable.  Gifts and bequests to US citizen spouses are not taxed.  Bequests to charities remain untaxed, as do some lifetime gifts to charities.

United States Citizens and Permanent Residents (typically a green card holder) are subject to United States estate and gift tax on their worldwide assets, whether through lifetime gift or passing at death.

The United States is a party to a number of estate and gift tax treaties, whereby double taxation is avoided, typically on real estate.

Taxation for Spouses not United States Citizens

US-citizen spouses can receive lifetime gifts or bequests at death from their spouse in an unlimited amount, pursuant to the unlimited marital deduction.  Non US citizen spouses receiving lifetime gifts cause taxation as if they were non spouses, save for the increased annual gift exclusion amount for such spouses.  With respect to bequests at death, a non-US citizen spouse can receive the benefits of citizen status through the use of a Qualified Domestic Trust (“QDOT”), where the estate tax is deferred until actually paid out to the non-citizen spouse, or the spouse does at some point become a citizen.

Taxation for Non Resident Aliens of their US situs property

Domestic real estate always has as its situs the United States.  Nonresident aliens, essentially persons who are not United States citizens and not permanent residents in the United States, are not subject to United States estate tax, except for certain assets owned in the United States, primarily real estate.  The estate tax is charged at regular estate tax rates, with an exemption amount of only $60,000.  Without proper planning, this tax is quite punitive.

Intangible assets are subject to a number of rules that classify certain assets as non-us situs or as not subject to United States transfer tax, such as bank deposits in US banks, stock in US companies, and life insurance proceeds.

What is the Applicable Exclusion Amount?

The Applicable Exclusion Amount is the amount transferred prior to death (over and above the annual gifting exclusions) that can be transferred free of gift tax, whether to the non-citizen spouse or others.  At death, the same Applicable Exclusion amount applies, except that any portion that was used to eliminate gift tax during lifetime reduces the amount available at death.

Planning Ideas

Permanent residents of the United States, also known as greencard holders, are treated essentially the same as United States citizens.  Such persons pay United States income tax on their worldwide income, and pay United States estate and gift tax on their worldwide assets.

Time to Plan is Before Permanent Residence States

Once a United States person for tax purposes, it is difficult to avoid United States estate and gift tax.  There are standard estate planning techniques available to United States citizens to reduce and minimize such taxes, but these pale in comparison to the estate planning available before one becomes a permanent resident.  The most significant estate planning technique is pre-immigration planning.  At its core, pre-immigration estate planning involves retitling assets and/or moving assets into structures where the assets are not subject to United States estate or gift tax.

Are There Any Pitfalls to Becoming a Permanent Resident?

There are two issues.  The first is that, for a married couple, both citizens of the United States, they can freely move their assets back and forth without paying gift tax (during life), and without paying estate tax (on the death of the first spouse).  The United States estate tax grants an unlimited marital deduction for these gifts and transfers between spouses.  If the spouse receiving the assets is not an actual United States citizen, the tax-free amount that can be transferred is only $185,000 (for 2024), not unlimited.  This is true even if the surviving spouse is a permanent resident.

The second issue is the exit tax that a permanent resident must pay upon giving up the permanent resident status.  The exit tax essentially is a capital gains tax on the appreciation of any assets owned by the permanent resident.  It is basically the same tax that applies to a United States citizen who renounces their United States citizenship.

Treaty Relief

The United States has entered into an estate and/or gift tax treaty with a select number of countries, including Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, Norway, South Africa, Sweden, Switzerland, and the United Kingdom. These treaties, in general, allow a citizen of one of the treaty countries who owns property to avoid the possibility of both countries taxing the same asset at the time of death. As far as the United States estate tax is concerned, a treaty might reduce or eliminate such tax on the United States property of a nonresident alien.

How Can an Estate Planning Attorney Help?

Proper estate planning for Non US citizens can greatly reduce the incidence of the United States estate tax for non US citizens – nonresident aliens and permanent residents – by taking advantage of certain structures and estate planning techniques, such as:

• Pre Immigration Planning
• Debt Financed Real Estate
• Offshore Trust Planning