Non US citizens, such as green card holders and nonresident foreigners, can also carry out estate planning in the US. But when it comes to estate tax, estate planning becomes a whole new ball game for non US citizens.

Federal estate tax exemption

Estate tax is an amount which must be paid from the estate purse to the government before the estate can pass to heirs when the owner has passed away.

In 2020, the federal estate tax threshold for United States citizens stands at $11.58 million (indexed to inflation in the coming years). This also applies to permanent US residents such as green card holders; but for nonresident foreigners, the federal estate tax exemption stands at only $60,000. The same tax rate of 40% is applied, and this makes tax quite a challenge for foreign investors and other foreigners who own property exceeding $60,000 in the US but are not domiciled.

Worldwide assets and double taxation

All US citizens, despite being liable to federal estate tax when their estate surpasses the threshold ($11.58 million), are still liable to estate tax for property they own in other countries. This same principle is applicable to non US citizens because green card holders and non US residents may still be liable to estate taxes in their countries of origin.

Citizens of some certain countries may need not worry about double taxation

The United States has made a treaty with a certain number of countries such that the estate of a citizen of the US or any of these countries will not be taxed by both countries when the estate is owned in one of these countries or the US. This applies to gifting too.

The countries include:

• UK
• Canada
• Germany
• Netherlands
• Greece
• Ireland
• Japan
• Italy
• Sweden
• Norway
• Austria
• South Africa
• Australia
• Switzerland
• Denmark
• Finland
• France

Therefore, estate owned by an Italian in the US will not be taxed by both Italy and the US.

Married couples as non US citizens

Naturally, the United States laws allow US citizens to pass estate to a spouse at death without paying estate tax, and assets can also be gifted infinitely between spouses without payment of gift tax. This is not the case when the receiving spouse is a non US citizen. Whether or not the spouse is a permanent US resident, they are only allowed to freely receive gifts and estate not exceeding $157,000 for 2020. Beyond this value, gift tax will be paid.

Non US citizens who domiciled in the US at time of death

It is worthy of note that non US citizens who have obtained permanent residence and green card in the United States are taken virtually equally as United States citizens. In this regard, just as they are entitled to the same federal estate tax exemption, they are also expected to pay income and gift tax on property they own in the US and elsewhere. There are estate planning techniques by which US citizens can escape or reduce income and gift taxes. For non US citizens who have already obtained permanent residency, these taxes are difficult to minimize even with intensive estate planning. Estate planning is better done before permanent residency is obtained.

Pre-immigration estate planning

This is the best estate planning strategy to adopt if you desire to minimize or escape income and gift taxes. Pre-immigration estate planning has to do with restructuring the manner in which your assets are owned, and transferring assets into certain setups in which they go beyond the reach of the US estate and gift tax liabilities.

Renouncement of permanent residency

Non US citizens who have obtained permanent residency in the US and wishing to renounce this status must pay a certain amount known as an exit tax. The amount paid to make up for the appreciation on the individual’s assets due to their residential status. US citizens wishing to give up their citizenship are also liable to this same taxation system.

Nonresident foreigners

Foreigners in the US who have neither obtained a green card nor an official status of permanent residency are not liable to the federal estate tax. But if these ones own certain noteworthy assets such as real property in the US, they become liable to the federal estate tax if the assets or real property exceeds $60,000, at the same standard rate of 40%. As have been hinted earlier, this exemption amount and rate are quite a significant cause of worry for foreign investors and as such, proper estate planning is required to escape these taxes. It becomes crucial to hire a well-versed and experienced estate planning lawyer for professional assistance.