Non-U.S. Owners of U.S. Companies: The Estate Tax Trap

An entrepreneur in Shanghai invests $2 million in a relative’s New York company for a 40% stake. The investor has never lived in the United States, has no green card and visits for no more than two weeks a year. After the investor’s death, the family learns that this $2 million stake owes more than $700,000 in U.S. estate tax, and that the shares cannot be transferred until the tax is paid.

This is not an unusual case. It is the most common, and most avoidable, trap for Chinese nationals and other non-U.S. persons who own American assets.

Two different tests for “residence”

For income tax, residence depends on a green card or days spent in the U.S., an objective test you can count. For estate tax, it depends on domicile: whether the person intends to live in the United States permanently, a subjective judgment. The two can differ. A person can be a nonresident for income tax but domiciled in the U.S. for estate tax, or the reverse.

$60,000 versus $15 million

In 2026, the federal estate tax exemption for U.S. citizens and domiciliaries is $15 million. For nonresident foreign individuals it is only $60,000, with the excess taxed at rates up to 40%. And stock in a U.S. company is U.S.-situs property, wherever the certificates are held and whether or not the owner ever visited. There is no estate tax treaty between the U.S. and China; the existing treaty covers income tax only.

In the example above, the federal estate tax on $2 million of U.S. company stock is roughly $733,000. Brokers and transfer agents generally will not release the shares until the IRS issues a transfer certificate, a process that often takes more than a year.

Other common traps

• A non-citizen spouse. A green card is not citizenship, and a non-citizen spouse does not receive the unlimited marital deduction.
• S corporations are off-limits. An S corporation cannot have a nonresident alien shareholder, and a mistake can terminate S status automatically.
• Reporting duties. Foreign-owned U.S. corporations and foreign-owned single-member LLCs must file Form 5472, with penalties starting at $25,000.
• Probate. A Chinese will must be authenticated and translated to be used here, which takes time. Under New York law, a non-U.S. resident living abroad cannot serve alone as executor of a New York estate and must serve alongside a New York resident.
• Compliance on the China side. Outbound investment filings, foreign exchange registration and the route by which funds leave China all need attention.

Planning is possible, but it must be tailored

The good news is that this problem can usually be planned for in advance. U.S. gift and estate tax rules treat nonresident foreign persons differently, and ownership structures, trusts, life insurance and the mix of assets can all change the outcome. Every approach involves real trade-offs, including income tax basis, control, Chinese tax and currency rules, and the future immigration plans of family members. It must be evaluated for the specific family by an attorney and accountant together, not copied from a template.

Attorney’s perspective: how I approach these cases

With a cross-border family, I start by building an inventory of U.S. assets: company interests, real estate, brokerage and bank accounts, and life insurance. For each one I determine whether it is U.S.-situs property and what estate tax exposure it carries. Many clients have never realized how far past the $60,000 threshold they already are until they see that list.

Next, I confirm the key status questions: the citizenship and residence of the owners and their spouses, and whether family members plan to move to the U.S. Only then do I work with the client’s accountant, and Chinese counsel where needed, on the right structure. I also usually recommend a separate U.S. will for U.S. assets, naming an appropriate New York co-executor so the estate does not stall.

Talk to me

If you or your family members are not U.S. citizens but own U.S. company stock, real estate or accounts, a focused review is worth doing now. Call +1 718-218-5805 or schedule a consultation. We can meet in English or Chinese.

This article is for general information only and is not legal advice. Reading it does not create an attorney-client relationship. For advice about your situation, please contact us.

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