What Happens If you Receive Inheritance from Non-residents?

Posted: August 18, 2019 - Blog, Tax Planning & Tips

Green Card Holder Manual

Often a green card holder or a first generation, foreign born American receives inheritance from his/her parents. In this blog, I will give you the big picture of how this works.

ESTATE OF US NONRESIDENT

Deceased is a US nonresident

If your parent is residing in a country other than the US,  he or she is a US non-resident. However, if he or she maintains a green card, he or she can be a US resident. If he or she has a green card but has an intention to go back to his/her home country at some point, he/she may be a non-resident for the estate tax purposes.

Assets are in the US

If all the assets you inherit are in foreign countries, then the US government cannot tax your parent or your parents’ estate. However, if your parents own a condo, house, US company’s stocks and/or other assets in the US (called US citrus), then the US government can demand a tax filing.

Please note that bank deposits and certain other financial assets are excluded from the valuation even if they are in the US.

Total Value Exceeds $60,000

If the fair market value of the assets at the time of death exceed $60,000, then US estate tax may be due. You must have someone prepare the form 706NA.  $60,000 is strikingly smaller than the resident’s estate tax exemption amount of $11.4 million in 2019.   In other words, the exemption that a nonresident can use is $60000 and the exemption for a resident is $11.4 million.

Please note that certain countries have tax treaties with the US.  The following countries have provisions of favorable tax credit (see page 4 under Line 7 explanation of 706 NA instruction)

  • Australia
  • Canada
  • Finland
  • France
  • Germany
  • Greece
  • Italy
  • Japan
  • Norway
  • Switzerland

If your parents reside in one of these countries, the exemption amount is not $60,000. By using the treaty benefit, residents of the above countries who have assets in the US can use larger than $60,000 exemption.

File 706 NA

Your parents or your parents’ estate (often you) must file 706 NA to report the inheritance. Tax rates range from 18% to 40% (the percentage gradually increases based on the value). The rate structure of the estate tax is similar to the rate structure of US income tax rates.

Please feel free to contact CDH for any questions about Form 706 NA.

Writer’s Note:

This blog simplifies very complex tax rules. The original purpose of this blog is to raise attention to those who may be affected for not filing the form 706 NA. For an individual application, you are strongly advised to consult CDH as each case may contain items that requires a special attention. Please contact me if you have any questions or comments on this article.

Koh Fujimoto, [email protected] (630) 253-0215

Koh Fujimoto

Koh is the Managing Principal of CDH. With a strong background in international business, specifically Japanese business, Koh leads our international growth. https://www.linkedin.com/in/kohfujimoto