An American who dies can pass on more than $13 million before US estate tax applies. An Indian resident who dies holding US shares gets an exemption of $60,000. Above that, the US government can tax the estate at rates that climb to 40%.
Most Indian investors buying US stocks through apps have never heard of this. It is the single biggest hidden risk in holding US assets directly.
Who it applies to
US estate tax applies to non-resident aliens on their “US-situs” assets. For an Indian investor, that typically includes:
- Shares of US companies, such as Apple or Microsoft, wherever the account is held.
- US-domiciled ETFs and mutual funds, including the popular S&P 500 and Nasdaq-100 funds listed in the US.
- US real estate.
Funds domiciled outside the US, such as Ireland-domiciled UCITS ETFs, are generally not treated as US-situs assets, even when they hold American shares.
How much it costs
The tax is calculated on the US-situs estate using a rate schedule from 18% to 40%, then reduced by a $13,000 credit. That credit is what produces the $60,000 exemption.
| US-situs assets | Estimated US estate tax | Share of assets |
|---|---|---|
| $60,000 | $0 | 0% |
| $100,000 | $10,800 | 10.8% |
| $250,000 | $57,800 | 23.1% |
| $500,000 | $142,800 | 28.6% |
| $800,000 | $254,800 | 31.9% |
| $1,000,000 | $332,800 | 33.3% |
India and the US have an income tax treaty, but no estate tax treaty. So there is no special relief for Indian residents, and US estate tax paid cannot be offset against anything in India.
What the family goes through
Beyond the tax, the process is slow. The executor files Form 706-NA with the IRS, generally within nine months of death. The broker usually freezes the account until the IRS issues a transfer certificate. Families can wait many months to access the money, even when no tax turns out to be due.
How investors manage it
- Fund domicile. Holding global exposure through funds domiciled outside the US, such as in Ireland, generally keeps those holdings outside US estate tax. These funds also often face lower US withholding on dividends at the fund level.
- Size of direct US holdings. Some investors keep directly held US shares and US-domiciled ETFs below $60,000 per person.
- Ownership across the family. Each person has their own $60,000 exemption, and their own LRS limit.
- Nominations and a will. These don’t remove the tax, but they make the process far smoother for the family.
Rules here are technical and change over time. Treat this as a map of the issue, and work through your own situation with your CA and, where needed, a US tax professional. We build every Meridian Capital portfolio with this risk in mind from the first day.