U.S Federal Estate Tax law is a rare topic of discussion in tax policy as the current exemption limit is $13.6 million, making it only relevant for the ultra-wealthy, and only 12 states impose additional estate taxes. However, these laws apply to American citizens and green card holders - for non-resident aliens, the exemption is only $60,000, affecting a wide range of non-Americans who hold American assets. This law catches many foreigners off guard, who assume that U.S estate tax law only applies to Americans. And most importantly:
if you are seeking to inherit your loved one's assets in the US, the Estate tax must be paid for you to get access to those assets.
Under U.S federal law, anyone who dies owning “U.S-situs property” can fall under the U.S estate tax system. U.S-situs property includes:
- U.S Real Estate
- Tangible personal property in the U.S (jewelry, vehicles, artwork, etc.)
- Stocks of U.S Corporations
- Interests in U.S Mutual Funds or ETFs
- Cash Accounts with U.S Brokerage Firms
- Bonds
IRS Form 706-NA
If a non-resident alien owns American assets and passes away, their relatives must fill out the IRS Form 706-NA to receive the deceased person’s assets. This form is used to calculate tax liabilities for estates of the deceased. Ultimately, this form shows the IRS how much U.S assets the deceased owned, what deductions and treaties may apply, and how much U.S estate tax the executor must pay. It is important to note that this form must be filled within 9 months of the death.
IRS Form 5173
Once form 706-NA is filled and the executor pays the estate taxes due, the IRS processes it and issues form 5173, a document formally authorizing a bank, broker, or other custodian to release the deceased Americans assets to the executor. This form is not a tax return but rather an “all clear” notice that the IRS has confirmed that federal estate tax has been paid. Additionally, even if no federal tax is owed (that is, if the $60,000 exemption limit was not passed), form 517 is still required to release the U.S assets. Before form 5173 is filled to authorize the transaction of assets, they are essentially "frozen".
