Reference · US taxation

US estate tax

What US estate tax means for a European investor holding US-listed ETFs.

The mechanism

The United States taxes a non-resident's estate on its “US-situs” assets — those located in the United States for tax purposes. US-listed shares and ETFs are among them, whatever broker holds them: moving the account changes nothing, it is the asset that counts. The exemption threshold for a non-resident is only $60,000 (against several million for a US resident), and the schedule rises to 40%.

Treaties, country by country

Everything then depends on whether — and on which generation of — an estate-tax treaty exists between your country and the United States. Three situations exist. MODERN treaties (so-called “domicile” treaties) give the resident a prorated exemption credit on the US allowance, which often cancels the tax for mid-sized estates. OLDER treaties (so-called “situs” treaties) mainly resolve double-taxation conflicts: their protection is real but more limited. With no treaty, the $60,000 threshold applies in full.

The procedure, even with no tax due

Treaty or not, the friction remains: at death, the US broker freezes the assets until it receives a transfer certificate from the IRS, which requires filing Form 706-NA. Expect months. A transfer-on-death (TOD) beneficiary clause avoids US probate, but NOT estate tax nor the 706-NA. Heirs must be able to wait: estate liquidity is to be planned outside US accounts. See the detailed procedure — the $60,000 threshold, Form 706-NA, the transfer certificate and the TOD designation.

What is not US-situs

Two notable exceptions. A non-resident's US bank deposits are exempt from estate tax. And a UCITS fund domiciled in Ireland or Luxembourg is not a US-situs asset — even if it holds only US shares: this is the classic structural workaround, at the cost of fee differences, of intra-fund dividend taxation and of the access constraints covered earlier on this part of the site.

Design responses

Three levers combine: accept the exposure while documenting it (an estate file prepared with a notary versed in international matters turns months of uncertainty into a charted procedure); place the heirs' survival liquidity outside US jurisdiction; or substitute UCITS for US ETFs for the share you want to remove from the tax base. The right balance depends on the country of residence — the table above gives its first coordinate — the estate and the family situation: a decision to be taken informed, not by default.