A US citizen who dies in 2026 can pass $15,000,000 to heirs before a dollar of federal estate tax is due. A foreign national who is not a US citizen and not domiciled in the United States — yet who owns US stocks, a US rental property, or a US brokerage account — is shielded on just $60,000 of those assets. Everything above that line is exposed to US estate tax at graduated rates that climb to 40%. This is not a loophole or an edge case; it is the default rule, and it surprises affluent families constantly. It is especially punishing for Chinese families, because — unlike Canadians, Germans, Japanese, or Britons — they cannot reach for an estate tax treaty to soften it. This article explains who is caught, what is taxable, how treaties rewrite the math, and why two otherwise identical $20 million estates can owe wildly different amounts of US tax depending solely on the decedent's country of residence.
The $60,000 Trap
Start with the number that does the damage. The US estate tax system gives US citizens and US domiciliaries an enormous shield — an applicable exclusion amount of $15,000,000 for deaths in 2026, made permanent by the 2025 tax law. A decedent who is neither a US citizen nor domiciled in the United States — in the statute's language, a nonresident not a citizen (often shortened to NRNC, or simply a nonresident alien) — gets nothing of the kind. Their US estate is sheltered by a flat statutory unified credit of just $13,000, which under the unified rate schedule offsets the tax on only the first $60,000 of US-situs property. That $60,000 figure is fixed by statute and is not indexed for inflation; it has not moved in decades.
Above that threshold, US-situs assets are taxed under the same graduated schedule that applies to US citizens, reaching a top marginal rate of 40% on taxable amounts over $1,000,000. The mechanics are unsentimental: the tentative tax on amounts over $1,000,000 equals $345,800 plus 40% of the excess over $1,000,000. An estate exceeding the $60,000 threshold must file Form 706-NA — the estate tax return for a nonresident not a citizen of the United States — generally within nine months of death. For a family that has quietly accumulated a US brokerage account or a Manhattan condo, the bill can run into seven figures before anyone has thought to ask whether the US estate tax even applies to them. It does.
Domicile, Not Residency
The first thing most people get wrong is the test for who counts as a "nonresident." For US estate tax, the dividing line is domicile at death — not the income-tax concepts of residency that most globally mobile families know, such as the substantial-presence test or green-card status. The IRS defines it cleanly: a person "acquires domicile in a place by living there, for even a brief period of time, with no definite present intention of later moving." Domicile is about where you have planted yourself with no settled intention to leave. It is a facts-and-circumstances question — home, family, community ties, where you intend to be buried — not a day-counting exercise.
Because the two regimes use different tests, they can diverge. A person can be a US income-tax resident (filing a Form 1040, paying US tax on worldwide income) while remaining a non-domiciliary for estate-tax purposes — or the reverse. This is the trap that ensnares long-term residents who assume their tax status is settled. Crucially, the analysis does not stop at temporary visa-holders. Green-card holders and long-term US residents are frequently found to be US-domiciled, which flips them into the worldwide estate tax regime — exposing their entire global estate, not merely their US assets. Conversely, a Chinese parent who visits often but keeps home, business, and intention firmly in China is a non-domiciliary, and only their US-situs property is reached. The point is that domicile must be analyzed deliberately; it is not safe to assume either result.
What Counts as US-Situs
For a non-domiciliary, everything turns on a single classification: is the asset US-situs or not? Worldwide wealth is irrelevant to the tax base — only US-situated property is taxable. The catch is that the situs rules are technical and counterintuitive, and they trap exactly the assets that internationally minded Chinese investors love most.
The clearest example, and the one that catches the most families: shares of US corporations are US-situs property regardless of where the certificate or the brokerage account sits. If you hold Apple, Nvidia, or an S&P 500 index fund's underlying US shares through a brokerage account in Hong Kong, Singapore, or Shanghai, those US shares remain US-situs and are pulled into your US taxable estate on death. The physical location of the account does not save you; the nationality of the issuer is what counts. For a Chinese family whose offshore portfolio is heavy in US technology and growth equities, this means the bulk of that portfolio may be quietly sitting inside the US estate tax net. Other US-situs assets include US real estate; tangible personal property physically located in the US (cash, art, jewelry, vehicles, furnishings); US marketable securities and other intangibles deemed US-situs; debt obligations of US persons (other than qualifying portfolio debt); and the assets and bank accounts of a US trade or business.
What is not US-situs is equally important — and offers the planning handholds. Stock of a foreign (non-US) corporation is not US-situs, even if that company's only asset is a US building. US bank deposits and savings accounts that are not connected with a US trade or business are not US-situs. And — a point that surprises many — the proceeds of life insurance on the decedent's own life are treated as situated outside the United States, and so escape the tax entirely. Certain portfolio-interest debt obligations and all foreign real estate and tangible property abroad are likewise outside the net. The lesson for a Chinese investor is concrete: a portfolio of US equities is fully exposed, but the same economic exposure obtained through a foreign holding company, or a US bank balance, or a life insurance policy, can sit on the other side of the line.
The Treaty Exception and the Proration Ratio
The flat $60,000 shield is the default — but an estate tax treaty can replace it with something far more generous. The statute (IRC §2102(b)) sets the minimum unified credit at $13,000, but it also provides that "to the extent required under any treaty obligation," the credit is increased. Instead of the flat $13,000, a treaty-country decedent's estate may claim a portion of the full US applicable credit — the same $5,945,800 credit a US citizen receives in 2026 — scaled by how much of the worldwide estate is US-situs.
The mechanism is a proration ratio. State it plainly: the prorated unified credit equals the full US applicable credit amount × (US-situs gross estate ÷ worldwide gross estate). The estate then claims the greater of $13,000 or that prorated credit. Equivalently, the exclusion ratio is simply the value of the US-situs gross estate divided by the value of the entire gross estate wherever located. The smaller your US footprint relative to your global wealth, the larger the slice of the full credit you keep — but even a modest ratio applied to a multimillion-dollar credit dwarfs the flat $13,000.
There is a practical price for this benefit: claiming the prorated credit requires disclosing the decedent's entire worldwide gross estate on Form 706-NA, because the ratio cannot be computed without it. An estate unwilling or unable to document its global assets is confined to the flat $13,000 credit. The United States maintains estate or gift tax treaties with a limited roster of countries — including Australia, Austria, Denmark, France, Germany, Japan, the United Kingdom, Finland, Greece, Ireland, Italy, the Netherlands, South Africa, Switzerland, and, through a special article of the income tax treaty, Canada. Notably absent from that list is the one that matters most to our readers.
No US-China Estate Tax Treaty
The United States has no estate (or gift) tax treaty with the People's Republic of China. China does not appear on the IRS list of estate and gift tax treaty partners, and there is no proration relief to be had. A US-China income tax treaty does exist — signed in 1984 — but an income tax treaty provides no estate-tax relief whatsoever. The two regimes are entirely separate, and the income treaty does nothing to enlarge the estate's unified credit.
The consequence is stark. A Chinese-resident, non-US-domiciled decedent is limited to the flat $13,000 unified credit and the $60,000 exemption equivalent on US-situs assets. There is no scaling by the US-to-worldwide ratio, because the larger prorated credit is available only "to the extent required under any treaty obligation" — and there is no such obligation with China. A Chinese family's US real estate and US-corporation shares above $60,000 are exposed to estate tax at rates climbing to 40%, with essentially no shelter.
Contrast Canada. Canada also lacks a standalone estate tax treaty, but estate-tax relief flows through Article XXIX B of the US-Canada income tax treaty (added by the 1995 Third Protocol). It delivers three benefits a Chinese family cannot access. First, a prorated unified credit: Canada's estate may claim the greater of $13,000 or the full US applicable credit scaled by the US-situs/worldwide ratio — effectively extending the US exclusion to Canadians on a pro-rata basis. Second, a marital credit where US-situs property passes to a surviving spouse, equal to the lesser of the allowable unified credit or the US tax otherwise imposed on the transfer to the spouse — roughly a second credit-sized offset, claimed by election and by waiving the US marital deduction on that property. Third, a small-estate rule: if the decedent's worldwide gross estate does not exceed US $1.2 million, US estate tax is imposed only on US-situs property that would generate US tax even if sold (essentially US real property and US business property) — sparing US stocks and securities. None of these reach a Chinese decedent.
Head-to-Head: A Chinese Estate vs. a Canadian Estate
The fairest way to see the gap is to hold everything constant except the passport. Imagine two non-US-citizen, non-domiciled individuals who die in 2026, each with a worldwide gross estate of $20,000,000, of which $4,000,000 is US-situs property — say, US rental real estate plus shares of US corporations. Neither leaves the US assets to a surviving spouse, so there is no marital relief muddying the comparison. One was a resident of Canada; the other, a resident of China. The tentative tax is computed identically for both — the only thing that differs is the credit.
The shared starting point. The tentative US estate tax on the $4,000,000 of US-situs assets, under the IRC §2001(c) schedule, is $345,800 + 40% × ($4,000,000 − $1,000,000) = $345,800 + $1,200,000 = $1,545,800. Both estates begin here. From this figure each subtracts its available unified credit, and that is where the two stories split.
The Canadian estate. Because Canada has treaty proration, the estate computes its credit using the ratio of US-situs to worldwide assets: $4,000,000 ÷ $20,000,000 = 0.20, or 20%. It then takes the greater of $13,000 or the full $5,945,800 applicable credit times that ratio: $5,945,800 × 0.20 = $1,189,160. The net US estate tax is $1,545,800 − $1,189,160 = $356,640.
The Chinese estate. With no US-China estate tax treaty, there is no proration. The estate is confined to the flat NRA unified credit of $13,000. The net US estate tax is $1,545,800 − $13,000 = $1,532,800.
The gap. On identical assets, the Chinese-resident estate pays $1,532,800 while the Canadian-resident estate pays $356,640 — a difference of $1,176,160. That entire gap is the spread between the two credits ($1,189,160 − $13,000 = $1,176,160). The takeaway is sobering: for a foreign national holding meaningful US assets, treaty eligibility — and the relative size of US versus worldwide wealth, which sets the proration fraction — can be worth far more than the modest $60,000 exemption. Here it is worth over $1.17 million. For a Chinese family, the absence of a treaty is not a technicality; it is, on these facts, a seven-figure cost.
The Marital-Deduction Trap
Spouses do not automatically rescue each other from US estate tax — and this catches mixed-nationality couples hardest. Between US citizens, an unlimited marital deduction lets assets pass to a surviving spouse free of estate tax at the first death. But that unlimited deduction is unavailable when the surviving spouse is not a US citizen, regardless of how long that spouse has lived in the United States. A marital deduction may be taken only if either the surviving spouse is a US citizen, or the property passes into a Qualified Domestic Trust (QDOT), with the election made on Schedule M of the estate tax return filed with Form 706-NA. Without citizenship or a properly structured QDOT, transfers to a non-citizen spouse simply do not qualify for the marital deduction, and the US-situs assets are taxed at the first death.
This is precisely the situation many Chinese-American families occupy: one spouse a US citizen or green-card holder, the other a Chinese national, holding US real estate or US securities jointly or in the non-citizen's name. The QDOT can defer the tax, but it is a deliberate structure with its own trustee and distribution rules — not something that happens by default. Coordinating it across two countries' rules is exactly the kind of work that belongs in integrated tax and estate planning, undertaken well before a death forces the issue.
Planning Notes: The Gift-Tax Asymmetry
One quirk of the rules opens a genuine planning lane — but it comes wrapped in caveats. For lifetime gifts by a non-domiciliary, US gift tax reaches only US real property and tangible personal property situated in the United States. US-situs intangible property is not subject to gift tax — and the IRS expressly names stock of US corporations as an example of an exempt intangible. The result is a striking asymmetry: US corporate stock is US-situs and fully taxable at death (estate tax), yet can generally be given away during life free of US gift tax. Lifetime gifting of appreciated US equities — to children, or into appropriate structures — is therefore a classic technique for shrinking the US taxable estate. (A narrow exception: certain covered expatriates may face gift tax on US-situs stock.)
A second classic move addresses US real estate, which cannot be gifted away free of gift tax and is firmly US-situs at death: holding it through a foreign corporation, so that the decedent owns non-US-situs foreign stock rather than the US building directly. Each of these strategies is real, and each is caveat-laden — foreign-corporation ownership of US real estate carries income-tax, FIRPTA, and compliance trade-offs that can swamp the estate-tax saving if done carelessly, and gifting decisions interact with basis, control, and family dynamics. None of this is a do-it-yourself exercise. The right answer depends on the proportions of your wealth, your domicile analysis, your spouse's citizenship, and the laws of your home country — which is why these structures belong inside coordinated cross-border planning, built alongside qualified US and home-country counsel rather than bolted on after the fact.
We help globally mobile families map their US estate-tax exposure, weigh treaty benefits, and coordinate structures with cross-border counsel — all on a fee-only basis.
Sources & Further Reading
IRS — Some nonresidents with U.S. assets must file estate tax returns
IRS — Estate tax for nonresidents not citizens of the United States
IRS — Frequently asked questions on estate taxes for nonresidents not citizens of the United States
IRS — Instructions for Form 706-NA
IRS — Estate & gift tax treaties (international)
IRS — Gift tax for nonresidents not citizens of the United States
IRS — China tax treaty documents
IRS — What's new — estate and gift tax
