U.S. Estate and Gift Taxation of Nonresident Aliens

An Examination of the Rules and Regulations

Kevin Matz, JD, LLM (tax), CPA

The U.S. transfer tax regime requires special planning for nonresident aliens who invest within the United States. Estate and gift tax rules for individuals look first to whether the individual is a U.S. citizen. if the individual is not a U.S. citizen, then the next inquiry is whether the individual is a resident of the United States, with residence in the transfer tax context being synonymous with being a U.S. domiciliary. While U.S. citizens and residents are subject to worldwide estate and gift taxation on their gratuitous transfers, nonresidents—that is, persons who are neither U.S. citizens nor U.S. domiciliaries—are only subject to the U.S. transfer tax system on property that is situated, or deemed situated, in the United States. in addition, nonresident aliens are generally not subject to U.S. gift tax on the transfer of intangible property (such as U.S. securities), regardless of where the property is situated, or deemed situated. Furthermore, nonresidents are only subject to the federal generation-skipping transfer (GST) tax with respect to transfers to a person or persons that effectively “skip” a generation, where such transfers have been subject to the federal estate or gift tax.