The Estate Tax Trap: Sting in the Tail for a US Passport Holder

The Estate Tax Trap

The Estate Tax Trap: Sting in the Tail for a US Passport Holder


Should you have a US passport, or have a spouse or family member who does, then your net wealth may be subject to US Estate and Gift tax.  This tax can spell financial disaster for citizens and non-citizens alike as the tax is as high as 40% of your asset base not net income, regardless of how the assets are structured.


The Estate tax is imposed upon all assets of US citizens and non-citizen residents, regardless of the type or location of the property.  The rules are extremely complex and differ depending upon whether the gift is made during the giftors’ lifetime or at their death.


Whilst the double tax agreement may mitigate the effects of double taxation from an income tax perspective, it has no impact from a death or gift tax perspective as these are not taxed in Australia.



Whilst there are threshold exemptions, these vary significantly depending on the residency and citizenship status of the person.


Exemptions for U.S. Citizens and Non-Citizens Who are Domiciliaries of the U.S.:

1. A lifetime exemption of $5,340,000 (adjusted annually for inflation);

2. An annual exemption of $14,000 to any person;

3. An annual exemption of $145,000 to a spouse who is not a U.S. citizen; and

4. An unlimited amount may be transferred to a spouse who is also a U.S. citizen during life or at death.


Non U.S. Citizen/Non-Domiciliary of the U.S.:

1. Exempt the first $60,000 of U.S. situs assets at death;

2. Gift an unlimited amount of non-U.S. assets, including stock in U.S. companies;

3. Gift up to $14,000 per person annually of U.S. assets (gift splitting not permitted);

4. Gift up to $145,000 to a non-resident spouse of U.S. assets; and

5. Transfer during life or at death an unlimited amount to a spouse who is a U.S. citizen.


No doubt the last thing you want to deal with when a loved one passes away is potentially having the IRS on your doorstep asking for 40% of your family’s inheritance.  This is potentially a hidden tax, however careful planning which considers the type and timing of transfers could significantly reduce the amount of tax imposed on transfers.


It is a very complicated area of international tax, and we strongly advise you call your ESV Engagement Partner on 9283 1666 if you think that either you or a family member may be impacted by it.


Article by Colin Samuel