For nonresident aliens (NRAs) who own U.S. property, estate planning can be fraught with complexity and the risk of significant U.S. estate tax exposure. However, estate tax treaties between the United States and certain countries offer powerful tools to mitigate these risks and provide substantial tax relief.
In this blog, we describe 6 key ways in which these treaties can benefit NRAs and their heirs.
1. Avoidance of Double Taxation
One of the primary objectives of estate tax treaties is to prevent the same assets from being taxed by both the U.S. and the decedent’s country of domicile. Without a treaty, an NRA’s U.S.-situs assets (such as real estate or shares in U.S. corporations) may be subject to U.S. estate tax, while their home country may also impose inheritance or estate taxes on the worldwide estate.
Treaties allocate taxing rights between the two countries, ensuring that assets are not doubly taxed and providing much-needed certainty for cross-border families and investors.
2. Favorable Estate Tax Situs Rules
Treaties often redefine which assets are considered U.S.-situs for estate tax purposes. For example, some treaties exclude certain U.S. securities or bank deposits from the U.S. taxable estate, even though they would otherwise be subject to tax under domestic law. This can dramatically reduce the value of the estate exposed to U.S. taxation.
3. Increased Unified Credit (Estate Tax Exemption)
NRAs are generally entitled to a unified credit that exempts only the first $60,000 of U.S.-situs property from estate tax. Many treaties, however, allow a pro rata unified credit based on the ratio of U.S. assets to the decedent’s worldwide estate. This can increase the exemption significantly - the current (2025) lifetime gift/estate tax exemption is nearly $14 million.
4. Marital and Charitable Deductions
Some treaties allow for a marital deduction for property passing to a surviving spouse, even if the spouse is not a U.S. citizen. This is a significant benefit, as U.S. law generally restricts the marital deduction for non-citizen spouses (unless a qualified domestic trust (QDOT) is used).
Certain treaties also permit deductions for bequests to foreign charities, which are not deductible under U.S. law unless the charity is a U.S. organization.
5. Credits for Foreign Death Taxes
To further reduce the risk of double taxation, some treaties provide credits for estate or inheritance taxes paid to the other country. This ensures that the total tax burden is reasonable and not punitive.
6. Gift Tax Provisions
A gift of property by an NRA is subject to U.S. gift tax if the property being transferred is real estate or tangible personal property located within the U.S. As such, gifts of any intangible property by an NRA, whether or not situated in the U.S., and regardless of its value, is generally not taxable.
Similar to the estate tax, the U.S. has entered into a number of gift tax treaties (or combined estate and gift tax treaties) that can benefit NRAs making taxable gifts of U.S. property.
Since the gift tax acts as a back-stop to the estate tax, the benefits of the gift tax treaties will often mirror the benefits from an estate tax perspective.
For a full list of the current in-force U.S. estate and gift tax treaties, you can visit the following IRS website:
https://www.irs.gov/businesses/small-businesses-self-employed/estate-gift-tax-treaties-international
