US links, big risks: how your US citizenship or assets could cost your estate millions
Are you a United States (US) citizen, Green Card holder or own assets in the US? Without proper US tax planning advice, you could end up paying more than necessary in US estate taxes.
What is US estate tax and when does it apply?
US estate tax can apply to:
- US citizens (even if they own no US assets);
- Green Card holders and people who have made the US their permanent home; and
- non-US citizens who own US assets at the time of their death.
Am I a US citizen?
You may be a US citizen if:
- you were born in the US (even if you have never lived or worked in there) and neither of your parents were a US citizen at the time of your birth; or
- one or both of your parents were US citizens at the time of your birth.
Green cards holders and people who have made the US their permanent home will most likely be subject to the US tax regime in the same way as a US citizen.
What does this mean for US transfer tax?
US citizens
US citizens are subject to US transfer tax (gifts made during their lifetime, if not exempt, and transfer of assets on death) on their worldwide assets, which exceed the current (2025) threshold of US$13.99 million (adjusted annually for inflation). Worldwide assets can include trusts the US citizen creates or controls.
If the proper election is made on the death of the first spouse, the surviving spouse may have a possible combined exemption of US$27.98 million. Any taxable gifts made during the US citizen’s lifetime count as part of the threshold, which is reduced accordingly.
Legislation passed in July 2025 to permanently increase the basic exclusion amount to US$15m from 2026 (adjusted annually for inflation).
Non-US citizens
If you are a non-US citizen but own US assets, US transfer tax may apply to those assets if they exceed US$60,000 in value at your death. If tax is imposed, a reduction may be available under a treaty between the US and Australia on the transfer tax payable.
What counts as US property?
Assets considered to be located in the US for estate tax purposes include:
real property located in the US;
shares of stock issued by a US corporation (ie News Corporation shares) including those held in a self-managed superannuation fund and possibly those held in trusts that you created or control; and
assets in the US held in a trust where you have (or had within three years of death) ‘retained powers’, such as the power to change the trust and a retained interest in the assets of the trust funded by you.
A general power of appointment over property that was relinquished prior to death will not be included in the estate unless you relinquished such power within three years of death. However, there may be a gift tax component at the time of relinquishment.
There are exceptions to what constitutes property located in the US, which include amounts receivable as insurance on the life of a non-US citizen and bank deposits in US banks (unless it is a business account).
How can I reduce exposure to US estate tax?
You may be able to address your exposure to US estate tax with strategic lifetime gifting and bespoke succession planning.
Strategic lifetime gifting
There are exemptions from the transfer tax on gifts. When used, these gifts do not incur a transfer tax liability or affect a person’s current threshold. In 2025 (noting these amounts are subject to change each year), a US citizen can:
- make a gift of up to US$190,000 to their non-US citizen spouse;
- make gifts of up to US$19,000 per person to children or any other person; and
- make gifts for medical expenses and tuition fees up to a maximum amount each year.
Australian domicile, including citizens, can also consider:
- gifting US intangible property during your lifetime;
- using a limited liability company (LLC) in the US to hold tangible US property and US real estate (because shares are intangible property, they are not subject to gift tax when transferred during life); although the LLC will still be subject to US estate tax upon your death; and
- establishing a partnership in NSW between two discretionary trusts to hold property in the US or using a blocker company or LLC owned by the trust to hold the US situs assets.
The strategies may not work for every situation. Before transferring US assets, it is important to seek advice from both US and Australian tax experts. The same goes for non-US citizens buying US assets.
Bespoke succession planning
When a US citizen is in a relationship with a non-US citizen, careful planning is required. This prevents increasing the US citizen’s worldwide assets if, at the time of the non-US citizen’s death, assets are directly inherited by the surviving US citizen spouse. Similarly, it is not ideal for a US citizen to leave property located in the US to a non-US citizen spouse.
- If a US citizen is married to a non-US citizen who is not a US domicile, the surviving non-US citizen, who is not a US domicile at the time of death, will not be able to use any of the prior deceased spouse’s unused portion of the current threshold of US$13.99 million. However, it is possible to ‘defer’ the transfer tax payment on those assets that exceed the deceased spouse’s threshold by putting the estate into a Qualified Domestic Trust (QDOT).
This trust can be set up after the US citizen’s death but before the due date of the first tax return filed after their death. The rules for a QDOT must be followed strictly and there needs to be at least one trustee who is either a US citizen or US domestic corporation. Any distribution of capital (except for hardship related to a spouse’s health, maintenance, education or support, or the same for any person the surviving spouse must support) triggers taxes, as does the death of the surviving spouse. - Another solution is establishing a ‘Support Trust’ under a Will. This is particularly beneficial for US citizens in a relationship with a non-US citizen who holds most assets (being a common structure to minimise assets in the name of a US citizen).
If the non-US citizen dies first, the US citizen partner can receive their inheritance in a ‘Support Trust’ that they control. The survivor can make distributions covering health, education, maintenance and support (HEMS), which are broad categories ensuring the survivor’s usual standard of living. The Will also appoints a ‘Special Trustee’, an independent person who can make distributions for anything outside of HEMS, if it is not part of the survivor’s usual standard of living. The usual standard of living is determined at the time the first partner dies. When done correctly, this approach can protect the assets of the first deceased spouse from becoming part of the US citizen spouse’s estate upon their death.
What else should I consider?
- Consider whether to have Wills and the equivalent of enduring powers of attorney, which deal with financial decisions in case of mental incapacity, in both the US and Australia. The succession of real estate follows the laws of the country or state where it is located, while succession to other assets (movable property) is determined by an individual’s domicile (state-based in Australia and the US) at the date of death.
- Due to lengthy administrative delays in probate proceedings in the US, it is typically advisable to have Wills in both countries, carefully drafted to prevent accidentally revoking each other. This allows for more flexibility in Australian estate planning, such as incorporating asset protective and tax-effective testamentary trusts into Australian Wills.
- Relinquishing US citizenship is also an option, but it may result in significant tax liabilities. Professional advice is essential before deciding to relinquish US citizenship.
Disclaimer
While we cannot provide advice on US law (and this article is not advice, so it should not replace comprehensive US and Australian legal and tax advice), we are familiar with US issues from working with many clients facing them.
We can collaborate with you, your Australian tax advisers and trusted US lawyers to provide a tailored strategy that aligns with both US and Australian tax and succession planning needs
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