Watch: Big Mistake NRIs Make When Leaving the US (Costs Lakhs/Crores) | Back to India
A interview-based guide to US estate tax for NRIs returning to India, including the $60,000 threshold, US-situs assets, kids, gifting, and planning before you move.
The full write-up, with the numbers and the links.
Chapters
- 0:00 Introduction
- 1:27 US Estate Tax Overview
- 5:42 Estate to US Citizen Kids
- 6:55 Example
- 8:56 What should you do?
Transcript
Auto-generated captions, lightly cleaned
0:00 After years of hard work in US, you have decided to move back to India for good. Leaving stocks, houses behind for your kids. Big mistake. US may tax up to 40% of everything you left behind. This is not income tax and it's not a capital gain tax. This is something that you haven't heard before. This is called US estate tax. Where US might tax you up to 40% of everything you have in US when you pass away. Thousands lose crores yearly. So in this video, I'm going to talk about what this US estate tax is.
0:51 Which assets does it impact? How do you mitigate it or plan around it? And give a concrete example. Watch the video so that you can protect your legacy. By the way, my name is Avinash. I moved to India after living in US for 20 years. On this channel, we provide information as well as stories of families who move back to India so that you can make an informed decision and plan your move successfully. When people think about taxes in US, they think about income tax, maybe capital gain tax. The estate
1:30 Tax is almost never in the conversation, especially for the people who plan to leave. In India, we don't have inheritance tax at all. So the concept doesn't register. You assume it would be the same in US, but it's not. And the worst part is the people who hit the hardest are not the ultra-rich. They are middle-class families, engineers, doctors, professionals who built real wealth over 20 to 30 years in America. The US estate tax can hit up to 40%. That's the max rate. And for non-resident aliens, the exemption for the US estate tax is 60k. And for US citizens or the people who are living in US, that same exemption is $13.6 million.
2:25 Notice something? A US citizen gets $13.6 million as an exemption before estate tax kicking. But for non-resident aliens, so the people who move back to India and no longer a US tax resident, the exemption limit is $60,000. It's not a typo. It's actually $60,000. Let's start with basics. The US estate tax is a federal tax on the transfer of assets when you die. It applies to the fair market value of everything you own or deemed to own at the time of death. For non-resident aliens, people who move back to India and who are not US citizens and who don't maintain US tax residency, the rules are far harsher.
Read the full transcript (12 more sections)
3:20 The key phrase here, it's called US situs assets. Here, that's a legal term that describes the assets that are physically or legally located in United States. These are the ones that gets taxed in your estate tax while you die in Hyderabad or Bangalore. Let's get practical. Let me walk you through what counts and what doesn't. First, US real estate. Your home in New Jersey or a condo in California, any property in the US address, that's a big one. Second, your brokerage accounts, stocks, ETFs, mutual funds held in the US brokerage account like Fidelity, Schwab, E*TRADE. Even if the underlying company is an Indian or a global, if the account is in US, it counts.
4:17 Next, your retirement income account like 401k, IRA. Yes, these are included in the taxable assets. What are not included? Like your bank deposit. Cash deposits in the US banks are specifically exempt from the estate tax for non-resident aliens. Second, life insurance proceeds. If it's structured correctly, life insurance payouts are not subject to estate tax. And any assets that you held outside US, for example, your Indian FDs, Indian real estate, NRE accounts, savings account, these are all outside of US jurisdiction. And finally, US treasury bonds. These are also specially exempt for non-resident aliens.
5:06 This is a scenario that plays out in thousands of Indian families. You moved to US, you had kids who were citizens by birth. You move back to India, you become a non-resident alien. What happens to your estate when it passes to your US citizen children? Please note, the US estate tax is based on your status at the time of death. So if you are a non-resident alien, then $60,000 would be the exempt amount from the US estate tax before it goes to the
5:45 The transfer to the US citizen kids is not exempt. The estate has to pay the tax and the remaining will be passed on to the kids. There is one important thing to note, the unlimited marital [clears throat] deduction. So which allows a US citizen to pass unlimited assets to a US citizen spouse tax free. Keep in mind, this doesn't apply if the surviving spouse is not a US citizen. So if you're married to a non-US citizen like an Indian citizen and the person moved back to India, this protection, which is the unlimited marital deduction, doesn't apply. However, there is one exception that's worth noting. If the assets are under QDOT, qualified domestic trust, even non-citizen spouse can defer this estate tax. This requires careful legal
6:47 Setup, something to discuss with an estate planning attorney well before you need it.
6:55 Let me give you a concrete example so this stops being abstract. Meet Suresh. He spent 15 years in Bay Area as a software engineer. He and his wife, Priya, moved back to Bangalore in 2022. They both are Indian citizens and now they are non-resident aliens for US tax purpose. Their children, Arjun and Mira, were born in California, so they are US citizen kids. Suresh left the following assets in US when he moved back. US brokerage account, around $800,000. 401k, $400,000. A rental property in Fremont, $1.2 million. So the total US estate is $2.4 million.
7:44 Dollars. Unfortunately, Suresh passes away in 2025. His estate goes through US estate tax calculation as a non-resident alien. So the taxable asset is going to be 2.4 million minus the $60,000, which is the exemption for non-resident alien. So 2.34 million is subject to US estate tax at 40% rate. For the amount above the threshold, the estate tax bill is approximately going to be $920,000. That's huge. And that's the money Arjun and Mira will have to pay, often within 9 months of the date of death, before they can access or sell these assets.
8:37 If the rental property can't be sold in time, they might have to take the loan to pay the tax bill so they can keep the property. None of this had to happen. With a few planning steps, much of this could be avoided entirely.
8:56 So what can you actually do? Here are some real options. First, shift assets outside of US. The most straightforward path. If you're planning to return to India, consider if it makes sense to move your stocks or investments gradually from US brokerage account to Indian account or non-US structures. For example, Irish domiciled ETFs. IKBR is a good platform to have an exposure to US equities, but not to fall under the estate tax. Keep in mind, the cash that you have in your US bank accounts is not subject to estate tax. So holding the cash in the US bank account while during the transition is safer than holding the stocks. Second, insurance proceeds. A properly structured life insurance can provide
9:57 Liquidity to pay the estate tax without these insurance proceeds being subject to the estate tax itself as we talked earlier. So, your family gets the cash to pay the estate tax bill. This is a classic estate planning tool. And finally, gifting during the lifetime. The US has annual lifetime gift exclusion. Currently, it's about $18,000 per recipient per year. So, you can begin transferring assets to your children while you are alive reducing your taxable estate over time. Larger gifts may require filing a gift tax return, but still reduces the eventual estate.
10:48 So, the single most important thing that you can do is planning, ideally 2 to 5 years before your actual move. US estate tax is one of those things that doesn't exist in India. It's not part of the cultural or financial vocabulary, and so people simply don't think about it until they have to. And at that point, it's usually too late to do much about it. If you're planning to return to India or have already returned back with significant assets in US, please talk to a cross-border tax advisor and an estate planning person. It's important to have a structure, a plan in place. If this video helped you, and if this is the first time you're hearing about US estate tax, hit that subscribe button.
11:38 We cover exactly these kind of gaps, the things that matter enormously for NRIs, returning Indians, that nobody talks about until it's too late. Share this with one person who is planning to move back to India. It could save thousands of dollars. I will see you in the next one.
