Inheriting from afar: US estate tax and reporting essentials for non‐resident inheritors of US assets from a foreign decedent
Ladidas Lumpkins
by Ladidas Lumpkins
Navigating the intricate landscape of United States estate taxation for non‐resident inheritors demands an understanding of US rules and obligations. First, deceased non-US citizens are themselves subject to US estate taxation on their US‐situated assets. And second, the Internal Revenue Service (IRS) holds the authority to collect any unpaid estate tax from non-resident inheritors of US assets from a foreign decedent.
For an executor managing the estate of a non-resident who is not a US citizen, filing an estate tax return becomes a requisite task. The executor must file Form 706‐NA (the United States Estate and Generation-Skipping Tax Return for the Estate of a Non-Resident not a Citizen of the United States) if the fair market value at the time of the decedent's death for US-situated assets exceeds USD 60,000. US-situated assets include: (1) real estate located in the US, (2) tangible personal property (excluding specific art); and (3) the stock of corporations organised in or under US law. A federal estate tax lien attaches automatically to all property in the decedent’s gross estate.
Furthermore, this special lien also applies to beneficiaries if the executor does not pay the estate tax. The IRS can hold inheritors liable for unpaid estate taxes to the extent of the value of the inherited property.
If the foreign estate has a Form 706‐NA filing requirement, and an executor or administrator (who is appointed, qualified, and acting within the US) administers the property, then the executor must apply for a discharge of the estate tax lien. The executor makes this request by submitting Form 4422 Application for Certificate Discharging Property Subject to Estate Tax Lien at least 45 days before the date the certificate of discharge is needed.
If the foreign estate has a Form 706‐NA filing requirement, and the executor is outside the US, then the executor must file IRS Form 5173, Transfer Certificate. This form certifies that the IRS has discharged any estate tax, and that the custodian of the US‐situated assets can transfer the assets to the executor without liability. If the executor does not have to file Form 706‐NA, then they may request a transfer certificate by submitting specified documents to the IRS.
Estate tax treaties between the US and other countries play a pivotal role in shaping the estate taxation landscape. These treaties often provide more favourable tax treatment to non-residents by limiting the types of assets considered situated in the US and therefore subject to US estate taxation. Executors overseeing non-resident estates should consult such treaties where applicable, and file Form 706‐NA to claim a treaty‐based position.
Inheriting from afar involves a nuanced understanding of US estate tax laws, asset categorisation, and the intricate web of treaties that can influence tax implications. Executors and inheritors alike must navigate these complexities to ensure compliance with US tax laws and the efficient transfer of assets.
GGI member firm Prager Metis International LLCMore than 25 offices throughout the worldT: +1 212 643 0099
Advisory, Auditing & Accounting, Corporate Finance, Fiduciary & Estate Planning, Tax
Prager Metis International LLC is an accounting firm providing a full range of accounting, audit, tax, and advisory services to domestic and international clientele in a wide range of industries. With 26 offices worldwide, they have a level of expertise and a unique global presence that makes their clients’ world worth more.
Ladidas Lumpkins is the Partner-in-Charge of Private Wealth Services of Prager Metis. She provides strategic tax planning, compliance, and consulting to high-net-worth families and their closelyheld businesses. She specialises in the US taxation of individuals and trusts in multi-national family groups. Ladidas also advises clients on domestic and cross-border income, gift tax and estate tax matters. Contact Ladidas.
