US Estate Tax for Non-Residents 2026 Update and What It Means for International Investors

The United States continues to impose estate tax on specific “US situs” assets held by non-resident, non-citizen individuals (non-US individuals) at death. While the core framework of these rules remains largely unchanged, several important legal, procedural, and practical developments in 2025 mean that international investors should revisit their exposure to US estate tax and planning strategies.

What hasn’t changed

At a structural level, the US estate tax regime for non-US individuals remain consistent:

• The exemption threshold remains at USD 60,000 and is not indexed for inflation
• Estate tax rates continue to range from 18% to 40%
• US situs assets still include:

• US real estate

• Tangible property located in the United States

• Shares in US corporations

• Certain US debt obligations

• US trade or business interests

For many non-US individuals, this continues to create a relatively low threshold for potential US estate tax exposure.

What has changed?

A widening disparity in exemption thresholds

From 1 January 2026, US citizens and individuals domiciled in the United States for estate tax purposes benefit from a significantly increased lifetime estate, gift and generation-skipping transfer (GST) tax exemption of USD 15 million per person, adjusted annually for inflation (up from $13,990,000 for estates of decedents who died in 2025).

By contrast, the USD 60,000 exemption for non-resident, non-citizens remain unchanged.

This growing disparity has materially increased the relative exposure of international investors holding US situs assets and reinforces the importance of tax-efficient ownership structuring and treaty analysis.

Greater clarity on US situs assets in practice

There has been increased focus on how US situs rules apply in practice, particularly in relation to investment holdings.

• Shares in corporations formed under US law (‘US-domiciled corporations’) remain firmly within the US estate tax net.  This includes US mutual funds and ETFs, even when held through non-US platforms or investment wrappers
• US-qualified retirement plans (such as 401(k)s and IRAs) are generally treated as US situs intangible property for US estate tax purposes

At the same time, it is increasingly important to distinguish assets that are not treated as US situs:

• Bank deposits with US banks are generally excluded, provided they are not connected with a US trade or business

In practice, however, this distinction is often misunderstood by financial institutions, which can contribute to delays in estate administration.

Longer delays and increased procedural friction

One of the most significant practical developments is the lengthening of IRS processing times.

While historically the IRS referred to processing timeframes of six to nine months, estates should expect delays of nine to twelve months or longer, even where no US estate tax is ultimately payable.

This reflects broader IRS processing, with internal guidance indicating that examination and processing of returns may take up to 18 months from the filing date.

At the same time, both US and non-US financial institutions have adopted a more cautious approach and increasingly require formal IRS clearance before releasing US assets. This can be the case even when:

• The estate falls below the USD 60,000 filing threshold
• No Form 706-NA is technically required

Another practical consideration is that – even with IRS clearance, such as a transfer certificate which is issued by IRS once any tax imposed upon an estate has been fully discharged – each financial institution imposes its own internal procedures and documentation requirements before releasing an estate’s funds.

These delays can have a material impact on beneficiaries and the overall administration of cross-border estates.

Increased importance of estate tax treaties

The role of US estate tax treaties has become more pronounced.

The United States currently has estate and gift tax treaties with 16 countries, including the United Kingdom and Switzerland. These treaties can:

• Help determine domicile
• Reallocate taxing rights
• Provide additional relief through pro-rata exemptions
• Mitigate double taxation

For cross-border estates, treaty analysis is often central to determining both filing obligations and ultimate tax exposure.

Continued growth in foreign investment into the US

Foreign direct investment into the United States continues to grow, with the total position reaching approximately USD 5.7 trillion at the end of 2024—an increase of over USD 330 billion year-on-year.

This sustained growth, particularly from Europe (including the United Kingdom and Germany), has contributed to increased scrutiny of cross-border estates and US situs assets.

Against this backdrop, both the IRS and financial institutions remain highly focused on ensuring compliance before permitting the transfer of US situs assets on death. This has contributed to increased scrutiny of assets held on death, a more conservative approach to releasing estate assets, and a more complex and often frustrating administration of cross-border estates.

What this means for international investors

While the underlying US estate tax rules for non-residents may appear static, the practical risks, delays, and asymmetries have increased.

In particular:

• The relative exposure for non-US investors has widened
• Administrative delays can significantly impact estate distribution timelines
• Financial institutions are taking a more cautious and compliance-driven approach

As a result, proactive estate planning is more important than ever.

This typically involves:

• Reviewing ownership structures for US situs assets
• Considering the application of relevant estate tax treaties
• Planning for administrative requirements and potential delays

Early and coordinated advice across jurisdictions remains essential to managing both tax exposure and practical outcomes.

For a comprehensive overview of how US estate tax applies to non-residents, you can read our original guide here: US Estate Tax Guide for Non-Residents (2024)

If you would like to discuss your specific situation or review your exposure to US estate tax, please get in touch with our team.

Article by Tas Meghani