What is US estate tax?
Federal estate tax applies to transfers at death. Lifetime exemption is $13.61M (2024, indexed). Above that, top rate is 40%.
For US persons (citizens, GC holders): worldwide estate included. $13.61M exemption applies.
For non-US persons: only US-situated assets included. Exemption only $60,000.
When does it apply to NRIs?
NRI with US Green Card or US Citizenship at death:
- Worldwide estate included
- $13.61M exemption (most below)
- Form 706 (US Estate Tax Return) required if estate > exemption
NRI without US Green Card/Citizenship (Indian citizen, no US ties):
- Only US-situated assets included
- $60,000 exemption — very low
- US assets: US real estate, US-domiciled stocks (including ADRs?), tangible property in US, US bank deposits (some exceptions)
- Form 706-NA (US Estate Tax Return — non-resident alien) required if US-situated assets > $60,000
What's NOT US-situated for non-US persons
- Foreign bank deposits in US banks (bank account exempt)
- US life insurance policies
- US-domiciled stocks held outside US (some debate)
- Foreign assets entirely
Indian estate tax?
India does NOT have estate tax (abolished 1985). No tax on transfer of property at death.
But income from inherited property post-death is taxable to heirs per usual rules.
Worked example — NRI dies with US Green Card
US Green Card holder in India with $5M global net worth, mostly Indian:
- Indian property: $3M
- Indian MFs: $1M
- US 401(k): $500K
- US brokerage: $500K
Form 706 required (over $13.61M? No — under). Filed for record but no tax due.
Heirs (US-citizen children): Receive worldwide assets. Step-up basis for US tax. Form 3520 if any specific transfers > $100K from non-US persons (this scenario: from US person, no Form 3520).
Worked example — NRI dies as Indian citizen with US assets
Indian citizen, no US ties, dies with:
- Indian property: $5M
- US house (rental property in NJ): $800K
- US brokerage: $400K
Form 706-NA required for $1.2M of US-situated assets.
Exemption: $60,000. Taxable estate: $1.14M. US estate tax: ~$430K (at 37-40% rate).
This is a brutal hit. The Indian citizen owner often had no idea US estate tax would apply.
DTAA estate tax provisions
US has estate tax treaty with some countries (UK, Canada, France) but NOT with India. So no treaty relief.
This is one of the biggest cross-border estate tax gaps.
How to plan for NRI clients with US assets
Strategy 1: Use US-situs avoidance
- Hold US assets through foreign corporation (non-US-situs corporate stock if structured correctly)
- BUT triggers Form 5471 and other complications
- Cost-benefit analysis case by case
Strategy 2: Insurance
- US life insurance for non-US person is NOT US-situs (exempt)
- Cover the estate tax exposure with insurance
- Common for wealthy NRIs with US property
Strategy 3: Gift during life
- Annual exclusion: $18,000 per recipient
- Lifetime gift exemption parallels estate (so doesn't really help non-US persons)
- For non-US persons: gifts of US-situs property also taxable, but cash/bank deposit gifts may be exempt
Strategy 4: Marital deduction
- For US-citizen spouse: unlimited marital deduction
- For non-US-citizen spouse: limited to $185,000/year (QDOT can defer)
- NRI couples: planning around QDOT trusts can defer estate tax
Indian succession process
When NRI dies, Indian succession process:
- Death certificate
- Will (if any) — probate or letters of administration
- Succession certificate for movable property
- Property mutation
- Bank account closure or transfer
For US-resident heirs: Form 3520 disclosure if inheritance > $100K from foreign-person estate.
Practical advice
- Inventory US-situated assets for NRI clients
- Quantify US estate tax exposure for non-US-citizen NRIs
- Consider insurance to cover exposure
- Plan succession for both jurisdictions
- Wills in both countries — coordinated, not conflicting
- Update annually as net worth grows
Common estate tax mistakes for NRIs
- Assuming Indian non-resident status means no US estate tax
- Not knowing the $60K threshold for non-US persons with US assets
- Missing Form 706-NA filing
- No insurance to cover estate tax
- US property held in personal name (vs structures)
- Outdated wills
Explore our complete US Tax Return Guide to understand refunds, filing rules, and IRS procedures for NRIs.