New York is a city of green-card holders, visa workers, dual citizens, and families whose wealth sits on two or three continents. For them, the standard American estate plan can fail badly: a non-resident who owns a Manhattan condo may face federal estate tax after only $60,000 of exemption, a U.S. citizen cannot leave assets tax-free to a non-citizen spouse the way citizen couples can, and a distribution from a family trust in Europe or Asia can arrive wrapped in punitive U.S. taxes and reporting penalties.
The rules that produce these traps are mechanical, and almost all of them can be planned around — with the right trusts, titling, gifting sequence, and treaty analysis, put in place early. In 2026 the stakes are asymmetrical: U.S. citizens and domiciliaries enjoy a $15,000,000 federal exemption, indexed and with no scheduled sunset, while non-resident aliens still get the same $60,000 exemption Congress set decades ago.
This guide walks through the residency and domicile rules, the non-resident estate tax on U.S.-situs assets, QDOT planning for non-citizen spouses, foreign trusts with U.S. beneficiaries, FIRPTA, reporting, and a planning toolkit for three common cross-border scenarios.
Key takeaways
- Income tax uses residency (green card or substantial presence); estate and gift tax use domicile — a subjective, intent-based test. You can be a resident for one and not the other.
- Non-resident aliens get only a $60,000 exemption against U.S. estate tax on U.S.-situs assets — U.S. real estate, U.S.-located tangibles, and shares of U.S. corporations — at rates up to 40%.
- There is no unlimited marital deduction for assets left to a non-citizen spouse; a qualified domestic trust (QDOT) defers the tax instead.
- Lifetime gifts to a non-citizen spouse qualify for an elevated annual exclusion (indexed annually; confirm the current-year figure with the IRS before relying on it), versus $19,000 for other recipients in 2026.
- New York imposes its own estate tax — with a $7,350,000 exclusion and a cliff at 105% — and reaches New York real and tangible property even when the owner lived abroad.
- Foreign trusts and foreign gifts trigger U.S. reporting (Forms 3520/3520-A) with severe penalties, and accumulated trust income can be hit by the throwback rules when distributed to U.S. beneficiaries.
Residency vs. domicile: two different tests
The single most common cross-border mistake is assuming there is one definition of a U.S. taxpayer. There are two:
- Income tax residency is largely objective. You are a U.S. income tax resident if you hold a green card or meet the substantial presence test (a weighted day-count over three years). Residents pay U.S. income tax on worldwide income.
- Estate and gift tax domicile is subjective. You are a U.S. domiciliary if you live in the United States with no present intention of leaving. Courts and the IRS weigh home ownership, family location, visa type, community ties, and declarations of intent.
The combinations matter. A treaty-country executive on a work visa can be a full income tax resident yet remain a non-domiciliary — taxed at death only on U.S.-situs assets. Conversely, a green-card holder who has built a life in Brooklyn will almost certainly be treated as a U.S. domiciliary, exposed to estate tax on worldwide assets but also entitled to the full $15,000,000 exemption. Every plan we build starts by classifying each spouse under both tests.
The $60,000 problem: U.S. estate tax on non-residents
A non-resident alien (non-citizen, non-domiciliary) is subject to U.S. estate tax under IRC §§ 2101–2106, but only on property situated in the United States — and with a unified credit that shelters just $60,000 of value. Everything above that is taxed at graduated rates reaching 40%. What counts as U.S.-situs is therefore the whole game:
| U.S.-situs (taxable at death) | Not U.S.-situs (escapes U.S. estate tax) |
|---|---|
| U.S. real estate, including co-ops and condos | Real estate located outside the U.S. |
| Tangible personal property physically in the U.S. — art, jewelry, cars, cash in a U.S. safe deposit box | Shares of non-U.S. corporations, even if they own U.S. assets |
| Shares of U.S. corporations (Apple, a Delaware LLC electing corporate status), wherever the account is held | U.S. bank deposits not connected to a U.S. business (IRC § 2105(b)) |
| Certain U.S. debt and partnership interests (situs can be fact-specific) | Portfolio debt obligations, including most U.S. Treasury and corporate bonds held by NRAs |
| Life insurance proceeds on the non-resident's own life (IRC § 2105(a)) |
Gift tax follows a narrower rule: a non-resident alien pays U.S. gift tax only on gifts of U.S.-situs real estate and tangible property; lifetime gifts of intangibles — including U.S. stocks — are generally exempt under IRC § 2501(a)(2). That asymmetry (U.S. stock is estate-taxable at death but can be given away tax-free during life) is one of the most powerful planning levers available, and one of the many reasons non-residents should not simply wait. Our non-resident alien planning practice maps each asset to its situs before any documents are drafted.
New York's own layer: the state estate tax
New York adds a second tax. For 2026 the New York exclusion is $7,350,000, but with the notorious cliff: once a taxable estate exceeds 105% of the exclusion, the benefit of the exclusion disappears entirely and the whole estate is taxed from dollar one, at rates up to 16%. Non-domiciliaries are not exempt — New York taxes real property and tangible personal property located in the state, whoever owns it and wherever they died. A London domiciliary with a $9 million Manhattan apartment has both a federal problem (exemption: $60,000) and a New York problem. New York has no gift tax, but certain gifts made within three years of death are pulled back into a New York resident's taxable estate. For how the cliff works and how to plan around it, see our New York estate tax cliff guide.
The non-citizen spouse: no marital deduction without a QDOT
When both spouses are U.S. citizens, the unlimited marital deduction lets the first spouse to die leave everything to the survivor free of estate tax. IRC § 2056(d) turns that off when the surviving spouse is not a U.S. citizen — regardless of green card status — because Congress feared the survivor would take the assets home, beyond the IRS's reach.
How a QDOT works
The fix is the qualified domestic trust (QDOT) under IRC § 2056A. Property passing to a QDOT for the non-citizen spouse qualifies for the marital deduction, deferring — not eliminating — the tax. The core mechanics:
- At least one trustee must be a U.S. citizen or U.S. bank, and that trustee must be able to withhold tax; larger QDOTs (over $2 million) require a U.S. bank trustee or a bond/letter of credit.
- The surviving spouse may receive all trust income free of estate tax, and principal for hardship without triggering tax.
- Other principal distributions are hit with the deferred estate tax when made, and the remaining principal is taxed at the survivor's death — all computed at the first spouse's rates.
- The executor must make the QDOT election on the estate tax return; helpfully, a surviving spouse can create the QDOT and transfer assets into it after the first death, before the return is due.
- If the surviving spouse becomes a U.S. citizen (and meets residency conditions), the QDOT regime can be turned off going forward.
Lifetime alternative: the elevated spousal exclusion
Lifetime gifts to a non-citizen spouse do not qualify for the unlimited marital deduction either, but IRC § 2523(i) allows an elevated annual exclusion — indexed annually (confirm the current-year figure with the IRS before relying on it), versus the standard $19,000 annual exclusion. A disciplined multi-year gifting program can move substantial wealth to the non-citizen spouse without a QDOT ever being needed. Couples in this position should also revisit joint titling: joint property between spouses follows special contribution-tracing rules when one spouse is a non-citizen. These issues are the daily work of our cross-border marriage planning practice.
Estate and gift tax treaties
The United States has estate and/or gift tax treaties with roughly fifteen countries — including the U.K., Germany, France, Japan, and others. Treaties can change the outcome dramatically: many allow a non-resident's estate a pro-rata share of the full U.S. exemption (based on the ratio of U.S. assets to worldwide assets) instead of the bare $60,000; they may reassign situs for particular assets; they provide domicile tie-breaker rules for people connected to both countries; and they coordinate credits so the same asset is not fully taxed twice. Treaty analysis is not optional garnish — for a treaty-country decedent it often changes the tax by six or seven figures — and it interacts with foreign law questions our foreign estates team handles alongside counsel abroad.
Green-card holders and the exit door
A green card makes you a U.S. income tax resident automatically, and it is strong — though not conclusive — evidence of estate tax domicile. Two brief warnings for holders thinking of leaving. First, long-term residents (a green card in at least 8 of the last 15 years) who surrender it can be treated as covered expatriates under IRC § 877A, facing a mark-to-market exit tax. Second, under IRC § 2801, U.S. persons who later receive gifts or bequests from a covered expatriate can themselves owe a tax at the highest transfer-tax rate. Anyone weighing a green-card surrender should sequence the estate planning first, not after.
Foreign trusts with U.S. beneficiaries: the throwback trap
Families frequently hold wealth in trusts formed in the Channel Islands, Liechtenstein, Singapore, or the Caribbean — created long before anyone moved to New York. Once a beneficiary becomes a U.S. person, the U.S. rules bite:
- While a foreign settlor is alive and the trust is a foreign grantor trust as to them, distributions to U.S. beneficiaries are generally income-tax-free (though reportable).
- After the settlor dies, the trust typically becomes a foreign non-grantor trust. Current-year income distributed currently is taxed to the U.S. beneficiary normally. But income the trust accumulates and distributes in a later year is hit by the throwback rules: taxed at the beneficiary's ordinary rates as if received in the earlier years, with loss of capital-gain treatment and a compounding interest charge that can consume most of an old accumulation.
The planning answers are structural and time-sensitive: distribute income currently, domesticate the trust, or restructure before the settlor's death or the beneficiary's move to the U.S. Our foreign trusts practice coordinates these projects with the trust's offshore trustees.
FIRPTA and the reporting rules heirs actually face
FIRPTA
Under FIRPTA (IRC §§ 897, 1445), when a foreign person sells a U.S. real property interest, the buyer must generally withhold 15% of the gross price. Heirs should know two things: inherited property receives a basis step-up to date-of-death value under IRC § 1014, so a prompt sale often produces little actual gain — and a withholding certificate can reduce the 15% haircut to something close to the real tax. If the heirs are U.S. persons, their own later sale is outside FIRPTA entirely.
Information reporting
- Form 706-NA: due nine months after death for a non-resident's estate with U.S.-situs assets over $60,000.
- Form 3520: a U.S. person who receives gifts or bequests from foreign individuals or estates totaling more than $100,000 in a year — or any distribution from a foreign trust — must report it. The gift itself is usually not taxable; the failure to report can draw penalties of up to 25% of the amount.
- Form 3520-A: annual return for foreign trusts with a U.S. owner.
Planning toolkit: three common scenarios
| Scenario | Main exposures | Planning tools to evaluate |
|---|---|---|
| Non-resident alien owning a NYC condo | Federal estate tax above $60,000; New York estate tax; FIRPTA on sale; probate in New York (ancillary) | Treaty check first; nonrecourse financing to reduce net U.S. value; holding structures (foreign corporation or trust — weighed against income tax costs); life insurance to fund the tax (proceeds are non-U.S.-situs); a trust to avoid ancillary probate |
| Mixed-nationality couple in Brooklyn (citizen + non-citizen spouse) | No unlimited marital deduction; New York cliff; guardianship/titling gaps | QDOT provisions in the wills or revocable trusts; annual gifts up to the elevated spousal exclusion (indexed annually; confirm the current figure with the IRS) to the non-citizen spouse; citizenship timing before the 706 is due; credit-shelter planning sized to the New York exclusion; review of joint accounts and the deed |
| Foreign parents gifting to U.S. children | Form 3520 reporting; accidental U.S.-situs gifts; future foreign-trust throwback | Gift cash or foreign intangibles (no U.S. gift tax), not U.S. real estate or tangibles directly; wire from a foreign account; consider a properly structured foreign grantor trust while the parents are alive; document everything for the 3520 |
How Schwartsman Law Group can help
Cross-border estate planning sits at the intersection of federal transfer tax, New York tax and property law, immigration status, and the law of another country — and mistakes are usually invisible until someone dies. Schwartsman Law Group PLLC builds integrated plans for non-citizens, green-card holders, and mixed-nationality families: situs audits, QDOTs, treaty positions, foreign trust restructurings, and coordinated estate planning documents that work in both jurisdictions. Founding attorney Marianna Schwartsman, a summa cum laude Fordham Law graduate with large-firm trusts-and-estates training, leads the firm's cross-border work.
Call +1 212 518 3868 or book a free consultation at our offices in Brooklyn (2102 Avenue Z), Manhattan (590 Madison Avenue), or Manhasset (1129 Northern Boulevard). Bring a list of what you own and where it sits — that one page is where every cross-border plan begins.