Your Heir’s Own US Estate Tax

The trap almost nobody sees arrives a generation later. Once the heir owns US stocks, US funds, or US real estate, those assets sit in their US taxable estate when they die (IRC §2104, “Property within the United States”), and a nonresident alien’s estate gets a credit of $13,000 under IRC §2102(b), “Credits against tax”, enough to shelter $60,000. Not $15 million: $60,000. The credit has not changed since 1988 and was never indexed. A niece in Mumbai who keeps $1 million of a US index ETF at a US broker leaves her own children a US estate tax bill of $332,800, a Form 706-NA, and an account the broker will not release without an IRS transfer certificate. A treaty can replace the $60,000 with a pro rata share of the full exemption (IRC §2102(b)(3)); Canada’s income tax treaty does. India, China, and Russia have no estate tax treaty with the US, so their residents get the $60,000.

The fix is the same one that solves the fund problem. Cash and Treasuries are outside the rule, and so are funds domiciled outside the United States. A foreign heir should hold the market through a fund from their own region—for an EU resident, an Irish- or Luxembourg-domiciled UCITS fund, the exact wrapper you as a US person must never buy. Put that in writing in the letter that goes with the inheritance.