Understanding U.S. Estate Tax for Foreign Investors—And Why Complex Structures May Not Be Necessary

By Bianchi Fasani Green Law PLLC – International Estate and Tax Planning Attorneys in Miami and Key Biscayne, Florida

Complicated Offshore Structures

When it comes to investing in U.S. real estate, many foreign clients are told they need complicated offshore structures to protect their assets from U.S. estate tax. I often speak with investors who were advised to set up arrangements such as a Panama company owning a U.S. company that holds U.S. real estate. These structures are marketed as the only way to avoid estate tax because the client is not “domiciled” in the U.S.

But the reality is different. While the U.S. estate tax rules are strict, they are also clear — and for many investors, particularly those from countries with estate tax treaties, simpler and more efficient solutions are available. Before committing to an offshore setup, it’s important to understand what the law actually says about estate tax for foreigners, when it applies, and how treaties can eliminate the problem altogether.

Here’s what every foreign investor should know.

What the U.S. Estate Tax Covers

The United States imposes an estate tax on the transfer of wealth at death. For U.S. citizens and domiciliaries, the tax applies to all worldwide assets.

For nonresident aliens—foreign individuals not domiciled in the U.S.—the tax applies only to U.S.-situs assets, such as American real estate or shares of a U.S. corporation.

This rule comes directly from the Internal Revenue Code, which in IRC § 2101(a) establishes the estate tax for nonresidents, while IRC §§ 2103–2104 define the scope of taxable property.

By contrast, IRC § 2105 clarifies that shares of a foreign corporation are not considered U.S.-situs property, which is why advisors so often promote offshore company ownership as a solution.

Domicile vs. Residency

The key question is: who counts as a “domiciliary”? For estate tax, domicile is not the same as tax residency for income purposes. Under Treas. Reg. § 20.0-1(b)(1), domicile requires physical presence in the U.S. with the intent to remain indefinitely.

A foreign national may spend significant time in America or even qualify as a resident for income tax, but still not be “domiciled” here if they intend to eventually return to their home country.

For non-domiciliaries, the U.S. estate tax exemption is just $60,000 under IRC § 2102(b)(1)—a stark contrast with the $13.61 million exemption available to U.S. citizens and domiciliaries in 2024 under IRC § 2010.

The Role of Estate Tax Treaties

This enormous difference in the U.S. estate tax exemption amount explains why estate tax planning is such a priority for foreign investors. But here is where the picture becomes more balanced: the U.S. has signed estate and gift tax treaties with many countries, including Italy, France, Germany, Switzerland, and the United Kingdom.

These treaties override the general Code provisions and often give foreign nationals access to a proportional share of the same unified credit available to Americans.

Take the Italy–U.S. Estate Tax Treaty as an example. Under Article 7, U.S. real estate held by an Italian domiciliary is indeed taxable in the United States. However, Article 8 provides that Italian domiciliaries are entitled to claim a proportionate share of the U.S. unified credit.

This effectively means that an Italian investor may use the multi-million-dollar exemption available to U.S. persons, proportioned to their U.S. assets compared to their worldwide estate.

In practical terms, unless the estate is very large, this treaty relief completely eliminates U.S. estate tax exposure. An Italian national with a Miami condominium worth $3 million, for instance, would not generally face estate tax at death, because the treaty credit is more than sufficient.

Why Offshore Structures Are Often Unnecessary

The presence of this helpful Tax Treaties is precisely why many of the elaborate structures promoted to foreigners, such as Panama companies, double-holding companies, and other offshore arrangements, are unnecessary for treaty nationals.

They do succeed in taking U.S. assets out of the U.S. estate tax base under IRC § 2105, but they come with their own problems:

• FIRPTA withholding under IRC § 897 when the property is sold,
• potential double taxation,
• higher maintenance costs, and
• no help in avoiding probate.

For many clients, a straightforward trust or a properly structured U.S. or foreign holding vehicle accomplishes the same goals—estate tax protection, FIRPTA management, and probate avoidance—without unnecessary complexity.

The Bottom Line

The bottom line is simple. U.S. estate tax applies differently depending on whether you are domiciled here or not, and on whether your home country has a treaty with the United States.

For nonresident aliens without a treaty, the $60,000 exemption makes planning essential. But for clients from treaty countries like Italy, the treaty unified credit often eliminates the problem altogether.

In those cases, complex offshore ownership structures may provide little benefit while creating additional cost and risk.

At Bianchi Fasani Green Law PLLC, we help foreign clients cut through the noise. By focusing on the actual statutes, the Treasury regulations, and applicable estate tax treaties, we design solutions that are legally sound, tax-efficient, and practical.

Offshore shell companies rarely serve our clients as well as a carefully tailored estate plan that balances tax efficiency with simplicity, probate avoidance, and compliance.

📍 Based in Miami and Key Biscayne, we assist international investors across Florida with estate tax planning, FIRPTA, and cross-border real estate ownership.