U.S. estate taxation of nonresident aliens.

• Author: Baldassari, Robert G.

The estate tax rules for nonresident aliens are similar to those for resident aliens and U.S. citizens. There are, however, very important differences. Generally, a nonresident alien's estate is taxed only on property located in the United States. The estate tax rates are the same as those for citizens, but the unified credit is smaller and there are significant restrictions on the use of the marital deduction.

Nonresident alien defined

A nonresident alien is a person who is neither a citizen nor a U.S. resident. The determination of resident or nonresident status is made at the time of death. "Residence" means domicile for estate tax purposes; a nonresident is an individual whose domicile is outside the United States. Domicile is acquired by living in a place with the intent to remain and without the intent to leave.

A U.S. citizen who acquires citizenship solely by being born in a U.S. possession is treated as a nonresident alien for estate tax purposes, as is a person who acquires citizenship solely by being a resident of a U.S. possession. For example, a former French citizen who moved to the Virgin Islands and acquired U.S. citizenship through naturalization proceedings in a Virgin Islands court is taxed as a nonresident alien.

Gross estate of nonresident alien

A nonresident alien's gross estate includes only real estate and other property located in the United States. If the property is subject to a mortgage for which the decedent's estate is not liable (e.g., a nonrecourse loan), only the equity value of the real estate is included. If the estate is liable for the mortgage, the full value of the property is included and a portion of the mortgage, equal to the ratio of U.S. situs property to worldwide assets, is taken as a deduction from the gross estate.

Tangible personal property located in the United States at the time of death is included in the estate. Exceptions to this rule include property held by a nonresident who dies while making a journey through the United States on his way to another country.

A nonresident's interest in community property is included in his gross estate to the extent of the interest he is deemed to own. If ownership is defined by foreign law, the portion of the property owned under the applicable foreign law is included in the gross estate. For example, the community property laws of Spain and France give each spouse a one-half interest in community property.

Selected intangible property located in the...