Foreigners Investing in the United States Must Consider U.S. Estate Tax

Foreign Nationals have long looked at investment in the United States (particularly in Real Estate) to increase their personal wealth portfolios.  During life, U.S. real estate investment can be rewarding either through rental income, or even just watching equity grow on assets through the years.  One concern, however, is the looming devastating tax blow that can occur upon the Foreign National’s death. 

In 2020, the Federal Estate Tax Exemption for United States Citizens and Permanent Residents is 11.58 million dollars.  This means an individual’s estate can be worth up to 11.58 million dollars at the time of his or her death before any federal estate tax will have to be paid.  This is a tremendous benefit for U.S. Citizens and Permanent Residents.

Deceased nonresidents who are not U.S. Citizens are subject to estate tax for their U.S. situated assets.  These assets include real estate, tangible personal property, and securities in U.S. companies.  The Estate Tax Exemption for a nondomiciliary is only $60,000.  This means all of the U.S. assets worth over $60,000 may be subject to estate tax.  For example, if a nondomiciliary owned U.S. real estate with a Fair Market Value of $1,000,000.00 at the time of their death, $940,000.00 of the estate would be part of the “taxable estate”.  In contrast, for a U.S. Citizen or Permanent Resident, if that $1,000,000.00 piece of real estate was the only asset, none of the estate be considered part of the “taxable estate” because the amount would fall comfortably below the current 11.58 million dollar estate tax exemption. 

While investment in the United States can be profitable, it is important to speak with a team of accountants and attorneys to discuss how to avoid the negative impacts of the estate tax for your heirs upon your death.  There may be an applicable tax treaty or use of life insurance policies, foreign trusts, or foreign companies (or a combination of different methods) that can help alleviate the tax burden for your heirs. 

Author: Matthew D. Pineda, J.D., LL.M., LLMLE

Note: The information in this blog post is provided as a service to the internet community, does not constitute legal advice, and should not be construed as legal advice or legal opinion on any specific facts or circumstances.