For international families, a U.S. home or investment portfolio can create an estate-tax obligation that has little to do with where they live, or where their heirs live.

A second home in Palm Desert. An interest in an American company. A portfolio of U.S. stocks held through a brokerage overseas.

These assets may serve entirely different purposes. But for an owner who is neither a U.S. citizen nor domiciled in the United States, they raise a common question: what happens when the assets pass to the next generation?

Families often focus on rental income, investment returns, and eventual capital gains. Estate tax is a separate consideration, governed by rules that can differ substantially from those applicable to American owners.

An estate holding more than $60,000 of U.S.-situated assets may have a federal filing obligation. Whether it actually owes tax requires a closer look at the owner's status, the assets, available deductions, and any applicable treaty. IRS: Estate tax for nonresidents

The $60,000 figure needs context

For 2026, the federal estate and gift tax basic exclusion for U.S. citizens and estate-tax domiciliaries is $15 million per person. Legislation enacted in July 2025 replaced the previously scheduled reduction. Foreign owners should not assume that exclusion applies to them simply because their investments are in the United States. IRS: Estate and gift tax updates

Under the standard rules for nonresident, noncitizen estates, the estate-tax credit is generally $13,000, the tax on the first $60,000 of taxable estate. That is why the figure is commonly described as a $60,000 exemption. Treaty provisions can provide a larger credit or other relief. Internal Revenue Code §2102

The filing threshold is a separate calculation. It generally considers U.S.-situated assets at death together with certain prior taxable gifts. A required return does not necessarily mean tax will be due. IRS: Form 706-NA instructions

Nor is everything above $60,000 automatically taxed at 40%. Estate-tax rates are graduated, and deductions and credits affect the final amount. Internal Revenue Code §2001(c)

The useful question is not simply, “Are our U.S. assets worth more than $60,000?” It is, “What would our estate actually owe, and what would our heirs need to file?”

Residency means something different here

Income-tax residency and estate-tax residency are not interchangeable.

For estate-tax purposes, the central concept is domicile: living in a place with no definite present intention of leaving. A person can be a U.S. resident for income-tax purposes while remaining a nonresident for estate-tax purposes. IRS: Form 706-NA definitions

For someone dividing time between California and another country, counting days is therefore not enough. Living arrangements, immigration status, family connections, and intentions deserve a coordinated review.

These rules also should not be confused with those for U.S. citizens living abroad. Moving overseas does not, by itself, place an American citizen in the nonresident, noncitizen estate-tax category.

California conformity

California does not impose its own estate, inheritance, or gift tax, so there is no separate California return at death. California does tax income, including gain when heirs later sell California property, and its residency rules for income tax are separate from the federal domicile test described above. A family can therefore hold a Palm Desert or Irvine property with federal estate exposure, no California estate tax, and California income tax on a later sale.

A foreign account does not make U.S. shares foreign property

Real estate is the most visible source of exposure. But a family does not need to own an American home to have a U.S. estate-tax issue.

Shares issued by a domestic corporation are generally U.S.-situated property. Holding those shares through a London or Toronto brokerage does not change the issuing corporation's identity. Shares issued by a foreign corporation are generally treated differently. Internal Revenue Code §2104

Consider a hypothetical investor who lives abroad, owns no U.S. real estate, and holds $800,000 of shares in U.S. corporations through a foreign brokerage. The account's location does not, by itself, remove those shares from the U.S. estate-tax calculation.

Bank deposits and bonds require a different analysis.

Qualifying U.S. bank deposits are generally excluded when their interest is not effectively connected with a U.S. trade or business. Ordinary checking, savings, and qualifying bank certificates of deposit can fall within this rule. A brokerage balance labeled “cash” should still be examined to determine what it actually represents. Internal Revenue Code §2105(b), §871(i)

Directly held U.S. Treasury bonds and many corporate bonds can also qualify for exclusion under the portfolio-interest rules. Public trading alone does not establish eligibility: the instrument's terms and the owner's circumstances matter, including restrictions involving certain substantial ownership interests and contingent interest. Internal Revenue Code §2105(b)(3), §871(h)

Owning a U.S. bond fund is not the same as owning its bonds directly. Shares in a U.S.-domiciled corporate mutual fund or ETF generally remain U.S.-situated assets, even when the fund invests in Treasuries. The former statutory look-through exclusion for certain regulated investment companies expired for deaths after 2011. Internal Revenue Code §2104(a), §2105(d)

The practical lesson: review the legal identity of each investment, not merely its account location or investment label.

Treaty relief can change the outcome

The United States has estate- or gift-tax treaty provisions with a limited group of countries, including Canada, the United Kingdom, and France. Canada's estate-tax provisions appear in Article XXIX B of the U.S.-Canada income tax treaty. An income tax treaty does not necessarily provide estate-tax protection. IRS: Estate and gift tax treaties

Depending on the treaty, relief may involve asset exclusions, credits, or limits on the tax. Where a proportional unified credit applies, the relationship between U.S. assets and the worldwide estate matters. The calculation involves a share of the tax credit, not simply the same percentage of the $15 million exclusion. Internal Revenue Code §2102(b)(3)

That makes the worldwide balance sheet important even when the immediate concern is one California property.

Treaty positions also require documentation. An estate may need to disclose assets, explain calculations, and file a return to claim the applicable treatment. Families should not assume relief will be applied without the necessary filings. IRS: Nonresident estate-tax questions

A mortgage can change the calculation, but the loan terms matter

Two properties with identical values and mortgage balances can produce different estate-tax results. The distinction is whether the estate is personally liable for the debt.

With a recourse mortgage, the property's full value generally enters the gross estate. For a nonresident, noncitizen estate, the debt deduction is then generally subject to the rules allocating allowable debts and expenses according to the U.S. share of the worldwide estate, unless applicable treaty provisions change the treatment. Worldwide asset disclosure is generally required to claim these deductions. Treasury Regulation §20.2053-7, Internal Revenue Code §2106

With a genuine nonrecourse mortgage, where the estate has no personal liability and the lender's recovery is limited to the property, generally only the net equity enters the gross estate. There is no separate deduction for the same mortgage.

For example, a directly owned $3 million property subject to a qualifying $1.2 million nonrecourse mortgage would generally contribute $1.8 million to the gross estate. This illustrates the property's inclusion value, not the family's final tax liability. Treasury Regulation §20.2053-7

Before relying on that distinction, advisers should examine guarantees, loan documents, and applicable law. Interest costs and the assets acquired or retained with the borrowed funds also belong in the analysis.

Changing ownership is not a one-step solution

Once families identify potential exposure, the next question is often whether they should transfer the asset to an LLC, trust, or foreign company.

The right starting point is a comparison, not a transfer document.

An LLC label alone does not establish an estate-tax result. Its classification, ownership, underlying assets, and applicable treaty need examination.

A revocable trust likewise does not automatically remove property from the taxable estate. Retained powers to change or revoke an arrangement can cause transferred property to remain included. Internal Revenue Code §2038

Foreign corporate ownership raises a different analysis because shares issued by a foreign corporation are generally outside the U.S. estate-tax base. That treatment is a starting point, not a complete recommendation. Internal Revenue Code §2104(a)

Before choosing a structure, advisers should model acquisition, annual operations, distributions, eventual sale, and succession. A structure that improves the estate-tax result may be unattractive once the entire investment cycle is considered.

Giving assets away can create a different tax problem

Lifetime gifts and transfers at death do not always follow the same rules.

For a nonresident, noncitizen donor, gifts of U.S. real estate and tangible property generally fall within the U.S. gift-tax system. Gifts of intangible property, such as shares in U.S. corporations, are generally outside it, subject to special rules and exceptions. IRS: Gift tax for nonresidents

That distinction makes “put the house in the children's names” an unreliable shortcut.

A proposed gift should also be evaluated for its effect on control, the recipient's tax position, and the basis used in a later sale. Inherited property generally receives a date-of-death fair-market-value basis, subject to exceptions; lifetime gifts follow different basis rules. IRS: Inherited property and nonresident estates

Bring succession into the investment decision

When required, the federal nonresident estate-tax return, Form 706-NA, is generally due nine months after death. An automatic six-month filing extension is available, but an extension to file does not automatically extend the time to pay. IRS: Form 706-NA instructions, IRS: Form 4768 instructions

For an executor, that deadline can arrive while the family is still collecting foreign records, arranging valuations, and determining treaty eligibility.

Owners can make the process easier now by assembling a clear record of citizenship and domicile, worldwide assets, ownership documents, borrowing arrangements, and intended beneficiaries. The review should involve advisers in the relevant countries, particularly before a purchase, restructuring, relocation, or substantial gift.

A U.S. investment should be evaluated at three points: when it is acquired, while it is owned, and when it passes to someone else. For international families, the third decision belongs in the first conversation.

This article provides general information, not individualized tax, legal, or investment advice. Results depend on the facts and applicable law, including treaty provisions. Special expatriation rules are outside its scope.