U.S. estate tax for foreign banks & custodians — Form 706-NA and transfer certificates
When a non-U.S. client dies holding U.S. securities or other U.S.-situated assets, a foreign bank, custodian, trustee or executor can face an unexpected U.S. estate tax issue.
For a decedent who was neither a U.S. citizen nor domiciled in the United States, the relevant filing is generally Form 706-NA — United States Estate (and Generation-Skipping Transfer) Tax Return, Estate of Nonresident Not a Citizen of the United States. In addition, the estate may need an IRS transfer certificate before U.S.-connected assets can be released or transferred.
1) Who is subject to Form 706-NA?
Form 706-NA applies to an estate of a decedent who was a nonresident not a citizen of the United States for U.S. estate tax purposes.
For estate tax purposes, residence is based primarily on domicile, not simply on the income-tax residency rules.
| Decedent status | Estate tax return |
|---|---|
| U.S. citizen | Form 706, generally based on worldwide estate |
| Non-U.S. citizen domiciled in the United States | Form 706 |
| Non-U.S. citizen not domiciled in the United States | Form 706-NA where the filing requirements are met |
U.S. income-tax residency and U.S. estate-tax domicile are different concepts. A person can be a U.S. resident for income tax purposes but still be treated differently for estate tax purposes depending on domicile.
2) Which assets are U.S.-situated?
For an NRNC decedent, U.S. estate taxation generally applies only to property treated as situated in the United States under the U.S. estate tax situs rules.
| Asset | General situs treatment |
|---|---|
| U.S. real estate | Generally U.S.-situated |
| Physical property located in the United States | Generally U.S.-situated, subject to specific rules and exceptions |
| Stock of a U.S. corporation | Generally U.S.-situated, even if held through a foreign account or nominee |
| Certain U.S. debt obligations | Situs depends on the applicable statutory exceptions |
| Certain bank deposits | May be treated as outside the United States under specific statutory rules |
| Life insurance proceeds on the life of an NRNC | Generally treated as property situated outside the United States for this purpose |
3) U.S. shares held at a foreign bank
One of the most important estate-tax issues for foreign private banks and custodians is the treatment of U.S. corporate stock.
Shares of corporations organized in or under U.S. law are generally treated as U.S.-situated property for estate tax purposes even where:
- the custody account is maintained in Switzerland, Liechtenstein or another foreign jurisdiction;
- the securities are registered through a nominee;
- the certificates, if any, are outside the United States; or
- the client had no U.S. residence or U.S. income-tax filing obligation.
a Swiss-resident, non-U.S. citizen holding shares of U.S. corporations through a Swiss private bank may still have a U.S.-situated gross estate for U.S. estate tax purposes.
4) The $60,000 Form 706-NA filing threshold
The executor generally must file Form 706-NA where the date-of-death value of the decedent's U.S.-situated assets, together with the applicable gift-tax specific exemption and adjusted taxable gifts, exceeds the statutory filing threshold.
The $60,000 threshold is not indexed for inflation.
Importantly, the filing threshold is not the same as the final taxable amount. Deductions, treaty benefits and other rules may substantially change the ultimate estate tax liability.
5) Estate tax treaties can change the result
The United States has estate and gift tax treaties with a limited number of countries. Where a treaty applies, it may modify the domestic-law situs rules, provide additional deductions or exemptions, or otherwise reduce U.S. estate tax exposure.
A foreign bank or executor should therefore not determine the U.S. estate tax position solely from the $60,000 domestic-law filing threshold without first checking the decedent's citizenship, domicile and treaty position.
| Review | Question |
|---|---|
| Citizenship | Was the decedent a U.S. citizen or dual citizen? |
| Domicile | Was the decedent domiciled in the United States at death? |
| Asset situs | Which assets are U.S.-situated under domestic law? |
| Treaty | Does an estate or gift tax treaty modify the domestic result? |
6) Form 706-NA
Form 706-NA is used to calculate U.S. estate and generation-skipping transfer tax liability for an estate of a nonresident not a citizen.
The return generally requires information concerning both U.S.-situated and non-U.S. assets because worldwide estate information can be relevant to deductions and the overall computation.
- decedent identification and domicile information;
- citizenship information;
- U.S.-situated assets and date-of-death values;
- worldwide estate information where required;
- prior taxable gifts relevant to the computation;
- debts, expenses and deductions;
- marital or charitable deductions where applicable;
- treaty positions where relevant; and
- supporting valuation and ownership documentation.
7) Filing deadline
Form 706-NA is generally due nine months after the date of death.
An extension of time to file may be requested using Form 4768. An extension to file does not automatically eliminate the need to address payment obligations by the applicable due date.
the estate-tax review should begin promptly after notification of death because obtaining asset valuations, executor documentation and treaty information can take considerable time.
8) What is an IRS transfer certificate?
A transfer certificate is an IRS document used in connection with the transfer of certain U.S.-connected property of a deceased nonresident.
The IRS states that it will issue a transfer certificate when it is satisfied that the estate tax imposed on the estate, if any, has been fully discharged or adequately provided for.
For foreign banks and custodians, the certificate can therefore become the practical document needed to demonstrate that the U.S. estate tax issue has been cleared before assets are transferred to heirs or beneficiaries.
9) Is a transfer certificate always required?
No. The required procedure depends on the estate and whether Form 706-NA must be filed.
IRS procedures distinguish broadly between:
| Estate | Procedure |
|---|---|
| Form 706-NA required | File Form 706-NA and separately follow the IRS transfer-certificate request procedure. |
| No Form 706-NA filing requirement | Submit the documentation required under the IRS non-filing transfer-certificate procedure rather than filing an unnecessary Form 706-NA. |
the IRS specifically cautions against filing Form 706-NA merely to obtain a transfer certificate where no return is required, because an unnecessary filing can delay the transfer-certificate process.
10) Transfer certificate where Form 706-NA is required
Where Form 706-NA is required, the estate first prepares and files the estate tax return. The transfer-certificate request then provides the IRS with information needed to identify the estate and the U.S. assets that need to be released.
The exact submission should follow the current IRS transfer-certificate instructions and can include copies of the filed Form 706-NA and schedules identifying U.S. assets.
11) Transfer certificate where no Form 706-NA is required
Where the estate does not meet the Form 706-NA filing threshold, the IRS provides a separate procedure to establish that no return is required.
The submission can require information such as:
- the decedent's citizenship and residence at death;
- confirmation concerning U.S. citizenship or naturalization history;
- a list of all U.S. assets in which the decedent had an interest;
- date-of-death values;
- account numbers for U.S. bank or investment accounts;
- information concerning the use of U.S. bank accounts in a U.S. trade or business; and
- supporting documents required by the current IRS procedure.
If the submitted documentation establishes that no Form 706-NA filing requirement exists, the IRS may issue correspondence confirming that a transfer certificate is not required rather than issuing a certificate itself.
12) Why banks and custodians freeze assets
After the death of a foreign account holder, a bank or custodian may need to determine whether transferring U.S.-connected assets could expose the institution, estate or recipient to unresolved U.S. estate tax issues.
A controlled process therefore commonly separates the account into:
- assets with potential U.S. estate tax situs;
- assets clearly outside the U.S. estate tax situs rules;
- assets requiring further classification; and
- assets covered by a relevant treaty analysis.
determine the U.S. estate tax position quickly enough that the institution does not unnecessarily block unrelated non-U.S. assets while still protecting against premature transfer of assets subject to U.S. estate tax procedures.
13) Recommended death-case workflow for a foreign bank
- Confirm death and authority: obtain the death certificate and identify the executor, administrator or other authorized estate representative.
- Determine U.S. citizenship: establish whether the client was a U.S. citizen or dual citizen.
- Determine domicile: assess whether the decedent was domiciled in the United States for estate tax purposes.
- Inventory U.S.-connected assets: identify U.S. securities, U.S. real property, bank deposits, debt instruments and other potentially relevant assets.
- Determine situs: classify each asset under the U.S. estate tax situs rules.
- Review treaty eligibility: determine whether an applicable estate or gift tax treaty changes the result.
- Determine filing requirement: assess whether Form 706 or Form 706-NA is required.
- Prepare valuations: establish date-of-death fair market values.
- Prepare estate tax filing: complete Form 706-NA where required.
- Request transfer clearance: follow the appropriate IRS transfer-certificate procedure.
- Document release decision: retain the IRS correspondence, tax filing and supporting analysis in the estate file.
14) Documents typically needed
- death certificate;
- passport and citizenship information;
- evidence of residence and domicile;
- will and probate documents;
- executor / administrator appointment;
- complete custody and bank statements at the date of death;
- security identifiers and issuer information;
- date-of-death valuations;
- information concerning U.S. real property or business interests;
- historical gift information where relevant;
- worldwide estate information where required;
- debts and administration expenses;
- marital and charitable transfer information;
- prior U.S. tax filings, if relevant; and
- documents supporting any treaty position.
15) Institutional U.S. estate tax support
Foreign banks and custodians do not necessarily need to maintain specialized U.S. estate tax expertise internally for occasional client death cases.
The technical U.S. estate tax work can be outsourced while the institution retains control over the client relationship, account administration and asset-release process.
| Bank / custodian retains | U.S. tax provider can support |
|---|---|
| Client and estate relationship | Citizenship and domicile analysis |
| Account and custody records | U.S.-situs asset review |
| Asset-control procedures | Form 706-NA filing analysis and preparation |
| Date-of-death account information | Estate tax and treaty calculations |
| Final asset release | IRS transfer-certificate request and follow-up support |
16) Key U.S. authorities
- IRS Instructions for Form 706-NA — estate tax return for nonresident decedents who were not U.S. citizens.
- IRS — Estate tax for nonresidents not citizens of the United States — U.S.-situated assets, filing threshold and general estate-tax rules.
- IRS — Transfer certificate filing requirements for NRNC estates — procedures for estates with and without a Form 706-NA filing requirement.
- IRS — Estate tax FAQs for nonresidents not citizens — current IRS guidance on situs, filing and related questions.
- IRS — About Form 706-NA — current Form 706-NA and instructions.
We support foreign banks, custodians, trustees and executors with U.S.-situs asset analysis, Form 706-NA, estate tax treaty review and IRS transfer-certificate requests.