If you pass away holding €250,000 in Apple and Microsoft shares and your country of residence at the time is not France, Germany, or the United Kingdom (among a few others), your heirs will discover they owe $57,800 to the IRS. That is nearly a quarter of the portfolio, even if you have never set foot in the United States. Welcome to the little-known trap of the US Estate Tax.
Investing in Big Tech (Google, Apple, Facebook, Amazon, Microsoft) or major US indices has never been easier. With just a few clicks through your bank, broker, or trading app, you become an owner of the world’s most successful companies.
But did you know that by holding these securities directly, you are potentially exposing yourself to a devastating US inheritance tax? Behind the simplicity of these transactions lies a formidable and complex tax architecture, designed decades ago, whose punitive mechanisms can wipe out an ill-prepared wealth management strategy.
As we begin this year 2026, it is crucial to understand how to protect your family's assets. Let’s explore how the Federal Estate Tax applies to investors classified as "Non-Resident Non-Citizens" (NRNC).
1. The Shock of the Figures: $60,000 vs. $15,000,000
For the typical investor targeted by this article:
- Living permanently abroad,
- Not holding US citizenship,
- Not holding a Green Card,
The applicable status is unambiguously that of a Non-Resident Non-Citizen (NRNC). An NRNC is taxed on assets located within the United States (US-situs assets) at the time of their death.
The problem lies in a blatant inequality. In the United States, the exemption threshold (the amount you can transfer tax-free) differs radically depending on your status:
- For a US resident: The exemption has risen to $15 million per person in 2026.
- For a Non-Resident Non-Citizen: This threshold has been frozen at just $60,000 since 1976. In reality, you are granted a unified tax credit of $13,000, which corresponds to an equivalent exemption of only $60,000. This amount has not been indexed for inflation since its inception in 1976, resulting in a significant broadening of the tax base.
As soon as the value of your US assets exceeds this small $60,000 limit, the US tax authorities (the IRS) can tax every additional dollar at progressive rates that quickly climb to 40%.
2. Which Assets are "At Risk"?
Not all investments are treated equally. The rule is based on the "Situs" (the legal location of the asset).
| Asset Class | Example | Situs Status | Taxable > $60k? |
| US Stocks | Apple Inc., Microsoft | US Situs | YES |
| Foreign Stocks | Toyota, SAP, LVMH | Non-US Situs | NO |
| US-Domiciled ETFs | VOO, SPY, QQQ | US Situs | YES |
| Irish-Domiciled ETFs | VUSA (LSE), CSPX | Non-US Situs | NO |
| US Treasury Bonds | T-Bills, T-Bonds | Non-US Situs (Exempt) | NO |
| US Bank Cash | Chase Checking Acc. | Non-US Situs (Exempt) | NO |
| US Brokerage Cash | Interactive Brokers Cash | US Situs (High Risk) | YES |
| US Real Estate | Miami Condo | US Situs | YES |
| ADRs (Foreign Co.) | Alibaba (BABA) | Non-US Situs (Generally) | NO |
Notable detail regarding US stocks listed outside the US: Although some companies benefit from being listed in foreign currencies on other exchanges (for example, US companies listed in Euros on European markets), they will always be considered US-situs.
Regarding cash held with your broker: In practice, the treatment of cash held at certain US brokerages can vary. You must check with your broker to understand how those funds will be classified. As a precaution, it should be treated as an "at-risk" asset.
3. Concrete Examples: The Weight of Geography
The impact of this tax depends heavily on whether a Tax Treaty exists between the United States and your country of residence.
3.1 The Progressive Rate Scale (Table A)
The tax is calculated on the total taxable estate before the credit is applied. The scale is progressive, starting at 18% and rapidly reaching the maximum rate.
| Taxable Value Bracket ($) | Marginal Rate | Tax on Bracket | Cumulative Tax (Base) |
| 0 - 10,000 | 18 % | 1,800 | 0 |
| 10,000 - 20,000 | 20 % | 2,000 | 1,800 |
| 20,000 - 40,000 | 22 % | 4,400 | 3,800 |
| 40,000 - 60,000 | 24 % | 4,800 | 8,200 |
| 60,000 - 80,000 | 26 % | 5,200 | 13,000 |
| 80,000 - 100,000 | 28 % | 5,600 | 18,200 |
| 100,000 - 150,000 | 30 % | 15,000 | 23,800 |
| 150,000 - 250,000 | 32 % | 32,000 | 38,800 |
| 250,000 - 500,000 | 34 % | 85,000 | 70,800 |
| 500,000 - 750,000 | 37 % | 92,500 | 155,800 |
| 750,000 - 1,000,000 | 39 % | 97,500 | 248,300 |
| > 1,000,000 | 40 % | - | 345,800 |
3.2 The $13,000 Unified Credit Mechanism
The $60,000 threshold is not a deduction from the taxable base, but rather the result of applying a tax credit.
The theoretical tax on the first $60,000 is exactly $13,000 (see table: $1,800 + 2,000 + 4,400 + 4,800 = $13,000$).
- The Tax Code grants all NRNCs a $13,000 credit.
- If the portfolio is worth $50,000, the theoretical tax is $10,600. The $13,000 credit wipes out the tax entirely (no "negative tax" or refund is issued).
- If the portfolio is worth $100,000, the theoretical tax is $23,800. After subtracting the $13,000 credit, the Net Tax Due is $10,800.
3.3 Calculation Example: $250,000 Portfolio (No Treaty)
Consider an investor residing in a non-treaty country (e.g., China, Brazil, Singapore) passing away with $250,000 in Apple shares and SPY ETFs.
- Gross Value: $250,000
- Theoretical Tax (Table A):
- On the first $150,000: $38,800
- On the next $100,000 (32% rate): $32,000
- Total: $70,800
- Less Unified Credit: -$13,000
- Net Tax Due: $57,800
- Effective Rate: 23.12%
This calculation demonstrates the system's severity: nearly a quarter of the capital is confiscated by the IRS, not including potential taxes in the deceased's country of residence.
3.4 Treaty Typology: Domicile vs. Situs
The US has a limited network of estate tax treaties, classified into two categories:
- Domicile-based Treaties (Modern): These grant the country of domicile the primary right to tax, while the US retains the right to tax real estate and business assets. Crucially, they often include "pro-rata credit" clauses.
- Countries: France, UK, Germany, Canada, Austria, Denmark, Netherlands.
- Situs-based Treaties (Old): These merely define the location of taxation for each asset class to avoid double taxation but generally do not increase the basic exemption.
- Countries: Ireland, South Africa, Australia, Japan, Finland, Belgium, Greece, Italy, Norway.
- Special Case: Switzerland (A "Situs" treaty that is exceptionally favorable, functioning similarly to modern treaties).
3.5 The Pro-Rata Unified Credit Mechanism
This is the most powerful tool for residents of eligible countries (notably Canada and France). Instead of being limited to the fixed $13,000 credit, the treaty allows the investor to benefit from the same exemption as US citizens, but prorated based on the share of US assets in their global estate.
The Magic Formula:
2026 Context Note: The "Max US Credit" is the theoretical tax on a $15,000,000 exemption. Based on the progressive scale, the tax on $15M is approximately $5,945,800 ($345,800 on the 1st million + 40% on the remaining $14M).
Detailed Case Study: French Investor vs. Singaporean Investor
Both investors pass away with the same $500,000 US portfolio.
Their total worldwide estate (home, life insurance, local accounts) is $5,000,000.
US/Worldwide Ratio = 10%.
- Case A: Singapore Resident (No Treaty)
- Theoretical tax on $500,000: $155,800
- Unified Credit (Fixed): -$13,000
- Tax to Pay: $142,800 (A dead loss for the heirs).
- Case B: French Resident (Treaty with Pro-rata Clause)
- Theoretical tax on $500,000: $155,800
- Pro-rata Credit Calculation:
- Max US Credit (on $15M): ~$5,945,800
- Ratio: 10%
- Available Credit: $5,945,800 \times 10\% = \mathbf{\$594,580}$
- Comparison: Since the available credit ($594,580$) is higher than the tax due ($155,800$):
- Tax to Pay: $0
Major Conclusion: For residents of countries with this type of treaty (France, Canada, UK, Germany), the US estate tax is often reduced to zero, provided the total worldwide estate does not exceed the US exemption threshold ($15M in 2026).
Warning: Applying this credit is not automatic. It requires filing a full US tax return (Form 706-NA) disclosing the global estate.
4. The Administrative "Nightmare"
Even if you owe no tax thanks to a treaty, your heirs will face a major obstacle: as soon as US financial institutions (brokers, banks, transfer agents) are notified of a non-resident account holder's death (for instance, during a probate inquiry), they immediately freeze the account.
- No buy or sell orders are possible.
- The portfolio remains exposed to market fluctuations. If a market crash occurs during the freeze, the value of the assets may plummet, yet the tax will be calculated based on the value at the date of death (historically high), creating a "double penalty."
- During this freeze, heirs can neither sell to secure gains, rebalance the portfolio, nor transfer funds, even in the event of a crash.
Example: In March 2020, during the COVID crash, you are among the victims: your $300,000 portfolio loses 35% in three weeks. However, your heirs cannot sell anything: the accounts are frozen by Interactive Brokers pending an IRS certificate. Six months later, when Form 706-NA is finally processed, the market may have rebounded... but the tax bill remains calculated on the original value at the date of death.
To release the funds, heirs must obtain a "Transfer Certificate" (Form 5173) from the IRS. This procedure is lengthy (typically 6 to 18 months) and requires filing complex forms:
- Form 706-NA: (Mandatory) The estate tax return for non-residents.
- Form 8833: (If applicable) Required if the executor is claiming treaty benefits.
This process effectively locks up your capital for the entire duration of the administrative processing.
5. Our Solutions for Investing with Peace of Mind
There are simple ways to bypass this issue without sacrificing the performance of US markets:
- Prioritize UCITS ETFs: This is the ultimate solution. Instead of buying a US-domiciled ETF (e.g., VOO - Vanguard S&P 500 ETF), buy its Irish-domiciled version (e.g., VUSA - Vanguard S&P 500 UCITS ETF). It tracks the same index but remains out of reach of the IRS.
- Use a "Wrapper": Holding your securities through a foreign corporation (holding company) or a Luxembourg life insurance contract (Unit-Linked) allows you to "shield" the individual from the IRS. The company or the insurer is the legal owner, not you.
- Lifetime Gifting: Unlike inheritance, US shares gifted during one's lifetime by a non-resident are not subject to US Gift Tax. However, this may still have tax implications in the donor's country of residence.
Case Study: Paul, a French resident, holds €80,000 in Apple and Microsoft shares in his standard brokerage account. His total worldwide estate is €800,000 (meaning 10% is in US assets). Thanks to the France-US treaty, he benefits from a pro-rata credit: 10% of the $15M US exemption, which is more than enough to completely wipe out any US tax.
But there is a catch: Upon his death, the account will still be frozen for 6 to 18 months while his heirs file Form 706-NA to disclose his worldwide assets to the IRS. During this time, it is impossible to sell if the market crashes.
The Solution: He switches to a MSCI USA UCITS ETF (such as LYUS or VUAA), domiciled in Ireland. He keeps the same market exposure, but with zero US paperwork and no risk of an account freeze.
Conclusion: Securing Your US Legacy
The real question is not "Should I invest in the United States?", but rather "Through which legal and tax structure should I be exposed to it?".
Direct investment in the US is a tax trap for non-residents. With an exemption threshold frozen at $60,000 (compared to $15 million for US citizens in 2026), the risk of a 40% tax rate is both real and immediate.
Even with a favorable treaty, US bureaucracy (Form 706-NA) can freeze assets for over a year, placing a heavy burden on heirs.
The 3 Pillars of Protection:
- Check your Tax Treaty: Determine if your country of residence has a Modern Treaty (e.g., France, Germany, Canada) allowing for a proportional exemption based on your worldwide estate, a "Situs" Treaty (e.g., Italy, Greece) which is far less protective, or no treaty at all.
- Prioritize UCITS ETFs: Using funds domiciled in Europe (typically Ireland or Luxembourg) completely eliminates US estate tax risk.
- Plan Your Transmission: Consider lifetime gifting of securities (often exempt from Gift Tax) or structuring through a foreign holding company.
In 2026, the gap in treatment between Americans and foreign investors has never been wider. Planning is no longer an option; it is a necessity to preserve your family's wealth.
Disclaimer: This content is provided strictly for informational and educational purposes. It does not constitute investment advice, nor personalized tax or legal advice. Since tax rules are subject to change and depend on the individual circumstances of each investor, it is recommended to consult a qualified professional before making any wealth management decisions.