The US Estate-Tax Trap for NRIs: How a $60,000 Threshold Can Take 40% of Your US Stocks and ETFs on Death

You are an NRI in Dubai. You have done everything right: a diversified portfolio, US tech stocks bought through a slick US brokerage, a US-domiciled S&P 500 ETF, maybe a US-domiciled India ETF like INDA so you keep a foot in the home market. The account is worth $500,000 and growing. You have never paid a cent of US income tax because you are not a US person, and you assume the US has no further claim on you. On the day you die, the US disagrees. It treats $440,000 of that account as taxable in the United States and bills your estate at rates reaching 40%, and there is no India-US treaty to soften it.

This is the US estate-tax trap for non-domiciled NRIs, and almost nobody you know has heard of it. It does not depend on your living in America, holding a green card, or ever having filed a US return. It depends on one thing: whether you hold US-situs assets. Most NRIs with a brokerage account do, without realising it, and the threshold that protects a US citizen, roughly $13.99 million in 2025 rising to $15 million in 2026, shrinks to $60,000 for someone who is not domiciled in the US. The gap between those two numbers is the trap.

The 30-second answer: A non-resident alien for US estate-tax purposes, meaning an NRI who is not a US citizen and not US-domiciled, gets a US estate-tax exemption of only $60,000 on US-situs assets, against roughly $13.99 million for a US citizen or domiciliary in 2025 (rising to $15 million from January 2026). Above $60,000 the US federal estate tax runs on a graduated scale from 18% up to 40%, and the executor must file Form 706-NA. US-situs assets include shares of US corporations (even in a non-US broker), US-domiciled ETFs and funds, and US real estate. US bank deposits and shares of non-US (Indian) companies are not US-situs. There is no India-US estate-tax treaty, so no treaty relief. The standard fixes are holding US exposure through Ireland-domiciled UCITS ETFs or a non-US holding structure.

This guide explains who counts as a non-resident alien for estate tax, what makes an asset US-situs (the part that catches everyone), how the tax is actually computed with a worked example on a $500,000 portfolio, the edge cases around domicile, green cards, joint ownership and Ireland-domiciled funds, and the handful of fixes that take the exposure off the table. It is a tax most NRIs never hear about until an executor is staring at a Form 706-NA, so the point of reading it now is to never have to file one.

The two regimes: who the US treats as a non-resident alien for estate tax

The first thing to understand is that the US estate-tax world splits people into two camps, and the test is domicile, not income-tax residence or citizenship in the ordinary sense. The two are easy to confuse, and confusing them is how NRIs talk themselves out of worrying.

A US citizen or a US domiciliary is taxed on their worldwide estate and gets the full unified exemption, $13.99 million in 2025, rising to $15 million per person from January 2026 under the figure made permanent by the 2025 One Big Beautiful Bill Act and indexed thereafter. This is the camp most people picture when they hear "US estate tax", and the headline exemption is so large that for a US person it rarely bites.

A non-resident alien for estate-tax purposes, which is to say someone who is not a US citizen and not domiciled in the US, is a completely different animal. They are taxed only on their US-situs assets, but on those assets they get an exemption of just $60,000, a figure fixed decades ago and never indexed for inflation. Above that $60,000, the same graduated rate schedule that runs up to 40% applies. The executor must file Form 706-NA if the US-situs estate exceeds $60,000.

The word that does all the work is domicile. For US estate-tax purposes, domicile means physical presence in the US combined with the intent to remain there indefinitely. It is a facts-and-intent test, not a day-count. You can be a US income-tax resident, filing a 1040 and paying US tax on your salary, and still not be domiciled for estate-tax purposes, because you intend to return to India or move on. That is exactly the position of many NRIs in the US on work visas: H-1B, L-1, O-1 holders who file US income-tax returns every year but have no settled intent to remain. For estate tax, they can sit in the non-resident-alien camp with the $60,000 exemption, not the $15 million one, even while living in California.

Green-card holders are the important exception in the other direction. A lawful permanent resident is generally treated as domiciled in the US, and therefore generally gets the full exemption and worldwide-estate treatment, the same as a citizen. That is a benefit on the exemption side, though it comes paired with worldwide exposure, the trade covered in NRI inheritance and estate tax. The honest framing: the green card is not a problem for the $60,000 trap specifically, because it lifts you out of it; it is a different exposure entirely.

So the population this guide is about is large and rarely self-identifies. It includes the NRI in Dubai, London, Singapore, or back home in India who holds US assets in any brokerage, and the NRI living in the US on a visa who is not yet domiciled. If you are not a US citizen and not a green-card holder settled with intent to stay, assume you are in the $60,000 camp until a cross-border adviser tells you otherwise.

What counts as US-situs, the part that catches everyone

The whole trap turns on situs, the legal location of an asset for US estate-tax purposes. Situs is not where your account is, not where you live, and not where you bought the thing. It follows specific rules per asset class, and the rules are more precise and more surprising than "anything American".

Shares of US corporations are US-situs, full stop, no matter where they are held. Apple, Tesla, Microsoft, Nvidia: if it is stock in a company incorporated in the United States, it is a US-situs asset in your estate even when it sits in a brokerage account in Dubai, Singapore, or Mumbai. Situs follows the company's country of incorporation, not the custodian. This is the single most missed point. NRIs reassure themselves that "the account is not in America", and it makes no difference at all.

US-domiciled ETFs and mutual funds are US-situs, because the fund itself is a US entity. A Vanguard, iShares or SPDR fund organised in the United States is a US-situs asset even when it holds nothing but non-US stocks. The trap here is brutal and counterintuitive: a US-domiciled India ETF such as INDA, which holds Indian companies, is a US-situs asset in your estate because the wrapper is American, while the underlying Indian shares, if you held them directly, would not be. The wrapper, not the contents, decides situs for a fund.

US real estate is US-situs, directly and unavoidably. A condo in New York, a rental house in Texas, land in Florida: all in your US estate. Real estate held through certain entities can change the analysis, but directly held US property is squarely in scope.

Tangible personal property physically located in the US is US-situs: artwork hanging in a US home, a car parked there, jewellery in a US safe-deposit box.

Now the assets that are not US-situs, and this is the half NRIs need most:

• Cash in a US bank deposit account is not US-situs. Deposits held with a US bank by a non-resident alien are specifically exempt from US estate tax. Your Chase or Bank of America balance is outside the net.
• Shares of non-US companies are not US-situs. Your Infosys, Reliance, HDFC Bank shares, and Indian mutual fund units, are outside US estate tax entirely. The same logic that pulls Apple in keeps Infosys out.
• Indian real estate is not US-situs. Your Pune flat is never a US estate-tax asset, whatever your status.
• Life insurance proceeds on the life of a non-resident alien are not US-situs, a point that turns insurance into a planning tool, covered below.
• Non-US-domiciled funds are not US-situs, even when they hold US stocks. An Ireland-domiciled UCITS ETF tracking the S&P 500 is an Irish asset, not a US one. This is the centre of the fix.

Two NRIs with identical net worth can therefore have wildly different US estate-tax exposure depending only on the wrappers they chose. One holds the S&P 500 through a US-domiciled SPDR fund and is fully exposed above $60,000; the other holds the same index through an Ireland-domiciled UCITS and has zero US-situs exposure on it. The index, the return, the dividends are nearly identical. The estate-tax outcome is night and day.

How the tax is computed, and the worked example that makes it real

The mechanics are simple once situs is settled. You add up the fair market value at the date of death of all US-situs assets, subtract the $60,000 exemption available to a non-resident alien, and apply the graduated estate-tax rate schedule to the excess. The schedule starts at 18% on the first slice and climbs through brackets to 40% on amounts above $1 million of taxable estate, the same top rate a US citizen faces. The executor reports it on Form 706-NA, due nine months after death, and the tax is the estate's liability before the assets are released to the heirs.

Put real numbers on it. Vikram is an NRI in Dubai, not a US citizen, not a green-card holder, not domiciled in the US. He dies holding a US brokerage account worth $500,000, made up of US tech stocks and a US-domiciled S&P 500 ETF, both US-situs. He also holds Rs 2 crore of Indian mutual funds and a Bangalore flat, which are not US-situs and play no part in this calculation.

• US-situs estate: $500,000
• Less non-resident-alien exemption: $60,000
• Taxable US estate: $440,000

Apply the graduated schedule to $440,000. The brackets run 18% up to 26% across the lower slices and reach 34% in the band covering this estate, so the tax is not a flat 40% of the whole, it is the graduated total. On a $440,000 taxable estate the US federal estate tax works out to roughly $130,800 before any state-level tax. That is about 26% of the entire $500,000 account, taken by a country Vikram never lived in, on assets he never paid US income tax on, with no India-US treaty to credit it against.

Now scale it the way real portfolios scale. Suppose the account had grown to $2,000,000 of US-situs assets by the time of death. Taxable estate is $1,940,000 after the $60,000 exemption, and because the schedule reaches 40% above $1 million of taxable estate, the bill climbs to roughly $721,000, more than a third of the account. The exemption is fixed at $60,000 while your portfolio compounds, so the effective rate rises the more successful you are. This is the opposite of how NRIs intuitively expect a "small-estate" allowance to behave.

Compare the same $500,000 held differently. Had Vikram held his US equity exposure through an Ireland-domiciled UCITS ETF and direct Indian shares instead of US stocks and a US-domiciled fund, his US-situs estate would have been close to zero, and the US estate tax would have been nil. Same money, same markets, same returns in life. The entire $130,800, or $721,000 in the larger case, was a function of wrapper choice, not wealth.

The contrast that stings most is against a US citizen. A US citizen dying in 2026 with a $500,000, or $2 million, or even $14 million estate pays zero federal estate tax, because they sit under the $15 million exemption. The non-domiciled NRI pays from the first dollar above $60,000. Identical assets, a 250-fold difference in the exemption, and no treaty between India and the US to bridge it.

There is no India-US estate-tax treaty, and that absence is the whole problem

NRIs who know about double-tax treaties assume one must rescue them here, because the India-US DTAA spares them double income tax on US dividends and capital gains. It does not help, because the DTAA is an income-tax treaty and does not cover estate tax at all. The relief mechanics of the income treaty are set out in the India-US DTAA deep dive, but none of it reaches a death tax.

The US does maintain separate estate-tax treaties with a number of countries, and where one exists it can raise the exemption available to that country's residents far above $60,000 or re-allocate taxing rights. The list is short, and India is not on it. There has never been an India-US estate-tax treaty. So a non-domiciled NRI gets no enhanced exemption, no treaty re-sourcing of situs, and no credit mechanism on the US side, and on the India side there is no Indian estate tax to credit it against even if you wanted to, because India abolished estate duty in 1985 and has not replaced it.

The result is a clean, one-sided exposure. The US taxes the US-situs assets of a non-domiciled NRI with only the $60,000 floor, India taxes nothing on death, and no treaty connects the two. That asymmetry is exactly why the trap is so quiet: there is no Indian filing, no Indian tax, and no DTAA line item to make an NRI notice it during their lifetime. It surfaces only at death, when the executor discovers the US wants its Form 706-NA before the broker will release the shares.

The fixes, from the free one to the structured one

The exposure is real, but it is also one of the most avoidable problems in cross-border investing, because situs is a choice you make when you buy, not a fate. Treat these as the levers, in rough order of how much they cost and how much they move the needle. None of this is personal advice; it is the menu a cross-border adviser will work through with you.

Use non-US-domiciled funds for US-market exposure. This is the free fix and the one that matters most for ordinary portfolios. Instead of a US-domiciled S&P 500 or total-market ETF, hold the Ireland-domiciled UCITS version that tracks the identical index. The fund is an Irish asset, so it is not US-situs, and your S&P 500 exposure sits entirely outside the $60,000 trap. UCITS funds also typically benefit from a 15% US dividend withholding rate under the US-Ireland treaty rather than the 30% an NRA suffers on direct US holdings, so the structure often improves your living tax position too. For how this fits a broader portfolio, see investing in index funds and ETFs as an NRI and the US-NRI-specific PFIC-safe investing guide. One honest caveat: this is the right answer for the non-domiciled NRI. A US person faces the opposite problem, because a non-US fund is a PFIC with punishing US income-tax treatment, the subject of the PFIC trap on Indian mutual funds. Situs planning and PFIC planning pull in opposite directions, so know which camp you are in.

Hold direct US equities through a non-US wrapper. If you want individual US stocks rather than a fund, the asset you own can be made non-US-situs by holding it through a non-US holding company or a non-US pooled fund, so that what sits in your estate is a share of a foreign company, not a US security directly. This adds cost and complexity and is worth it mainly at larger sizes; the simpler answer for most people is to express US exposure through the Ireland-domiciled fund above rather than direct US stock.

Life insurance. Because proceeds on the life of a non-resident alien are not US-situs, a life policy can both sit outside the US estate-tax net itself and provide liquidity to pay any estate tax that does arise, so heirs are not forced to sell US-situs assets in a hurry to fund a Form 706-NA bill.

US bank deposits are already safe. You do not need to do anything about cash in a US bank account, because NRA deposits are statutorily exempt. Do not over-engineer the cash.

Keep Indian assets where they are. Indian shares, Indian funds and Indian property are outside US estate tax by their nature, so there is nothing to fix on the India side. The structuring effort belongs on the US-situs portion only. The will and succession side of all of this is in NRI estate planning and wills.

Mind US gift tax too. The non-domiciled position is not only about death. US gift tax applies to a non-domiciliary's gifts of US real estate and tangible US property, so gifting a US condo to your children during your lifetime can itself trigger US gift tax, with only a small annual exclusion available. Notably, gifts of intangibles such as US shares by a non-domiciliary are generally outside US gift tax, which opens a lifetime-gifting route for US securities that does not exist for US real estate. This is genuinely nuanced and asset-specific, so take advice before relying on it.

Edge cases

Domicile is intent, and it can change without your noticing. The $60,000-versus-$15-million line turns on domicile, and domicile is physical presence plus intent to remain indefinitely, a facts test with no bright line. An NRI who arrives in the US on a temporary visa, then buys a home, enrols children in school, and quietly forms the intent to stay, can become domiciled for estate-tax purposes well before they get a green card, lifting them into the worldwide-estate, $15-million-exemption camp. The shift is good for the exemption and bad for worldwide exposure, and because it is a question of intent it is exactly the kind of thing a cross-border adviser should document. The honest read: do not assume your visa status answers the domicile question, because it does not.

Green-card holders sit in the other camp. A lawful permanent resident is generally domiciled and so generally gets the full exemption and worldwide-estate treatment, not the $60,000 floor. The trade is that their worldwide estate, the Pune flat included, is then in scope, the exposure walked through in NRI inheritance and estate tax. A green card solves the $60,000 trap and opens a larger one for the wealthy.

Joint ownership does not split the asset cleanly. NRIs assume that holding a US asset jointly halves the estate exposure. For a non-resident alien, the US rule is harsher: jointly held property is generally included in the deceased's estate in full, except to the extent the survivor can prove they contributed their own funds to acquire it. So a US brokerage account held jointly with a non-contributing spouse can be pulled into the deceased's US-situs estate at its whole value, not half. The contribution rule, and the absence of the unlimited spousal deduction where the surviving spouse is not a US citizen, make joint ownership a weak and often counterproductive planning tool here. This is a place to take advice, not to self-structure.

Ireland-domiciled ETFs versus US-domiciled ETFs. The two can track the same index and look identical on a brokerage screen, but for estate-tax situs they are opposites: the US-domiciled fund is US-situs and exposed above $60,000, the Ireland-domiciled UCITS is not US-situs at all. Check the fund's domicile, usually visible in the ISIN prefix (an IE prefix signals Ireland, a US prefix signals the United States) and in the fund's legal documents, not the index it tracks. For a non-domiciled NRI building US-market exposure, this single check is the difference between a clean estate and a 40%-bracket problem.

The 401(k) and IRA grey area. US retirement accounts held by an NRI who once worked in the US are generally treated as US-situs, though their precise situs is debated among practitioners and can interact with treaty and income-tax rules in ways that genuinely are not settled. If you left the US carrying a 401(k) or IRA, treat it as exposed and get a specific opinion rather than assuming either way.

The closing read

The whole guide reduces to one sentence: if you are an NRI who is not a US citizen and not US-domiciled, every US stock and every US-domiciled fund you own is exposed to US estate tax at up to 40% above a $60,000 floor, and almost nobody warns you.

The reason it stays hidden is that nothing in your lifetime flags it. You pay no US income tax as a non-resident, India taxes nothing on death, and the DTAA you rely on for dividends and capital gains does not touch estate tax, so there is no line item, no filing, no annual nudge. It surfaces once, at the worst possible moment, when your executor learns the US wants a Form 706-NA and a cheque before your heirs can touch the shares. The numbers are not trivial: on a $500,000 US-situs portfolio the bill is around $130,800, and because the $60,000 exemption never grows while your portfolio does, a $2 million account pushes past $700,000 into the 40% band.

The recommendation I will commit to, scoped to the non-domiciled NRI: stop holding US-market exposure through US-domiciled ETFs and direct US stocks if you can express the same exposure through Ireland-domiciled UCITS funds, because that one swap takes the largest part of the exposure to zero at no cost, and often improves your dividend withholding too. Keep your Indian assets where they are, they are outside US estate tax by nature. Use a US bank deposit for cash without worry, it is exempt. And if your US-situs holdings are already large, you hold a US condo, you are on a US visa and unsure of your domicile, or you have a 401(k) you carried out of the country, do not self-diagnose: the green-card, joint-ownership, domicile and gift-tax interactions are genuinely nuanced and in places unsettled, and one session with a cross-border estate adviser is far cheaper than a 40% surprise. The trap is real, but unlike most tax problems, this one you can simply choose not to walk into.

Related guides

• NRI inheritance and estate tax
• NRI estate planning and wills
• Investing in index funds and ETFs as an NRI
• NRI portfolio and asset allocation
• Tax-efficient investing for NRIs
• PFIC-safe investing from India for US NRIs
• The PFIC trap on Indian mutual funds for US NRIs
• FBAR and FATCA reporting for US NRIs
• The India-US DTAA deep dive
• NRI residency and RNOR rules

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This guide is general information, not tax or legal advice. US estate-tax treatment depends on your domicile (a facts-and-intent test distinct from income-tax residence), the situs of each asset, your immigration status, and the structures through which you hold US exposure; the situs of specific assets such as 401(k) and IRA accounts, the treatment of jointly held property, and the US gift-tax position on lifetime transfers can be situation-specific and are in places debated among practitioners. Figures cited are current as of June 2026: the $60,000 non-resident-alien exemption, the graduated 18% to 40% federal estate-tax schedule, and the roughly $13.99 million (2025) domiciliary exemption rising to $15 million from January 2026 under the One Big Beautiful Bill Act of 2025. There is no India-US estate-tax treaty. Confirm your position with a qualified cross-border estate-planning adviser before acting.