Are funds held at US brokerages (e.g. Interactive Brokers) by non-resident non-nationals liable for US Estate Tax even if the funds are invested in non-US stocks?
Certain deceased nonresidents who were not citizens of the United States are subject to U.S. estate taxation with respect to their U.S.-situated assets. For estate tax purposes, a citizen of a U.S. possession is not a U.S. citizen.
U.S.-situated assets that are subject to estate tax include, for example:
- Real estate located in the U.S.,
- Tangible personal property (excluding some art), and
- Stock of corporations organized in or under U.S. law, even if the nonresident held the certificates abroad or registered the certificates in the name of a nominee.
Note that holding a US stock using a non-US domciled ETF (e.g. Ireland domiciled ETF) or foreign corporation (e.g. British Virigin Island) does not trigger US Estate Tax, unless the decedent or beneficiaries are US persons (e.g including lawful permanent residents) where Passive Foreign Investment Company (PFIC) and Controlled Foreign Corporation (CFC) rules of the US are triggered.
Also note that US-domiciled funds e.g. VXUS ETF (held in any brokerages around the world) invested in non-US companies are considered as "situtated in the US".