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Estate tax on a nonresident alien decedent’s gross estate is applicable. This can include tangible and intangible property. The assets that are taken into consideration are real estate, tangible personal property, shares of stocks, bank deposits, and debt obligations
Real estate property is subject to estate state. If the property has a mortgage and it was the personal obligation of the decedent to pay the debt, the full fair market value of the real estate without taking into consideration the mortgage is subject to estate tax.
Many nonresident aliens end up purchasing a second home in the US without realizing that it would be subject to estate tax. However, estate tax on the real estate can be avoided if a foreign corporation owned by the nonresident alien purchases the property. This can only be done if all formalities of the corporation were correct. However, if as a nonresident alien, you already have property in your name and you transfer it to a foreign corporation, you may have to pay US income tax.
When we talk about tangible personal property, we are talking about jewelry, furniture, art etc which are located within the US. This also includes cash and collectibles in safety deposit boxes in the US. However, if the art is imported for an exhibition and is not part of the decedent’s private collection, it is exempt from estate taxes. Even personal property that is personal in nature which the nonresident alien brings into the US while visiting is not subject to estate taxes.
Shares of stock issued by US companies and corporation are subject to estate taxes. This also applies to mutual funds from US corporations even if the mutual fund is invested completely in foreign securities. However, stocks of foreign corporations are not subject to estate taxes.
Certain bank deposits are not subject to estate taxes and these include an interest bearing account in a US bank which is not connected to trade or business, a deposit in a foreign branch of a domestic corporation which is engaged in commercial banking business. However, a deposit into in a domestic branch of a foreign corporation can be subject to estate taxes.
If a debt obligation to a nonresident alien is exempt from US income tax, it is quite likely that it will be exempt from estate tax too. Estate tax does not apply to a debt obligation where the interest would be treated as income from sources outside the US for income tax purposes.
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