Most European investors who hold United States securities believe they have understood the American estate tax because they have read the exemption figure. For decedents dying in 2026 the basic exclusion amount is 15,000,000 dollars, up from 13,990,000 dollars in 2025, and at that level the tax looks like somebody else’s problem. The figure is correct. It is also the wrong figure, because it applies to citizens and residents of the United States and to nobody else.
An individual who is neither a citizen nor domiciled in the United States is taxed on a different basis and against a different number. Section 2102(b)(1) of the Internal Revenue Code allows a credit of 13,000 dollars against the tax on the estate of a nonresident not a citizen. Under the rate schedule in section 2001(c), 13,000 dollars is the tentative tax on 60,000 dollars. The exempt band is therefore 60,000 dollars of United States situated property, and everything above it is taxable on a schedule that reaches 40 per cent on amounts over 1,000,000 dollars.
Where the misunderstanding comes from
The two regimes share a name, a rate table and a form family, and they share almost nothing else. A resident decedent is taxed on worldwide assets against a very large exclusion. A nonresident decedent is taxed only on assets situated in the United States, against a credit that has not moved with inflation and is not indexed. The second regime is narrower in scope and far more punishing in effect, and the narrowing is what disguises it.
The practical consequence is that an estate can owe tax it never expected on a portfolio it considered modest. A European family holding two million dollars of American shares through personal accounts is inside the regime, not outside it. The heirs discover this when the custodian declines to release the position.
The Instructions for Form 706-NA, in the September 2025 revision, put the obligation plainly. The executor must file where the date of death value of the decedent’s United States situated assets, together with the gift tax specific exemption and adjusted taxable gifts, exceeds the filing threshold of 60,000 dollars. The return is due within nine months of death, with an automatic six month extension available on Form 4768.
What counts as situated in the United States
Situs is decided by statute, not by where the account is held. Section 2104(a) provides that shares of stock owned by a nonresident not a citizen are property within the United States only if issued by a domestic corporation. The location of the broker is irrelevant. Shares in an American company held in a Swiss or Dutch account are United States property, and shares in a foreign company held in a New York account are not.
Section 2104(c) brings in debt obligations of United States persons and of the federal government, of states and of political subdivisions. It also treats deposits with a domestic branch of a foreign corporation as United States property where that branch carries on commercial banking.
Section 2105 works the other way and is where most planning lives. Insurance proceeds on the life of a nonresident not a citizen are not United States property. Deposits with a foreign branch of a domestic bank are excluded, as are debt obligations whose interest would qualify as foreign source under the portfolio interest rules, and works of art imported solely for exhibition and on loan to a public gallery. The pattern is that Congress carved out what it wanted foreign capital to keep buying, and left equity in American companies squarely inside the charge.
Real property, partnerships and the unsettled edges
Real property physically located in the United States is situated there, and no structuring at the account level changes that. This is the item that most often carries an estate over the threshold on its own, because a single apartment or a share in a commercial building will exceed 60,000 dollars several times over.
Interests in partnerships and in limited liability companies are the genuinely uncertain category. The Code does not state a situs rule for them in the way it does for corporate shares, and the analysis has been built out of rulings and case law rather than statute. An adviser who tells a family that a United States limited liability company interest is safely outside the estate is stating a position, not a rule.
The same caution applies to assets held through nominee arrangements and to jointly held accounts. Joint ownership does not remove the decedent’s interest; it determines how much of it is included. Where the survivor cannot show their own contribution, the whole value is exposed.
The gift tax asymmetry, and what it makes possible
The gift tax treats the same investor entirely differently. Section 2501(a)(2) excludes from gift tax the transfer of intangible property by a nonresident not a citizen. Shares in an American corporation are intangible property. They are inside the estate tax and outside the gift tax, subject to the exceptions in the statute for certain expatriates and for stock of foreign corporations in the hands of specified donors.
Real property and tangible personal property situated in the United States remain within the gift tax. So a lifetime transfer of American shares is a very different act from a lifetime transfer of an American house, and the difference is not intuitive to a European client whose own system taxes both alike.
The annual exclusion figures fill in the rest. For 2026 the annual exclusion for gifts is 19,000 dollars, and the annual exclusion for gifts to a spouse who is not a United States citizen is 194,000 dollars. Both are annual, both require the transfer actually to be made, and neither helps an estate that arrives at death holding everything.
The spouse who is not an American citizen
The marital deduction is the provision most European families assume will absorb the problem, and section 2056(d) removes it. Where the surviving spouse is not a citizen of the United States, no deduction is allowed under section 2056(a). The exception is property passing to that spouse in a qualified domestic trust within the meaning of section 2056A.
A qualified domestic trust is a real instrument with real conditions, including a United States trustee and security for the deferred tax. It defers rather than forgives, since the tax attaches on distributions of principal and on the death of the surviving spouse. Establishing one after a death is possible within the filing window, but it is done under time pressure by people who have just lost somebody.
What the estate tax treaty does and does not do
The United States maintains estate or gift tax treaties with a short list of countries, and the Netherlands appears on it with an estate tax convention. Section 2102(b)(3)(A) is the statutory hook. To the extent required under a treaty obligation, the credit allowed to the estate of a nonresident is the same proportion of the applicable credit amount in force under section 2010(c) for the year of death as the United States situated part of the gross estate bears to the entire gross estate wherever situated.
That is the pro rata unified credit, and it is worth stating what it means. A Dutch domiciled decedent whose worldwide estate is largely European, with a minority in American securities, can substitute a proportion of the full American exclusion for the flat 13,000 dollar credit. The arithmetic depends on the ratio of United States assets to worldwide assets, so a small American holding inside a large European estate produces a small fraction of a very large number, which is usually more than 13,000 dollars.
The price of the relief is disclosure. Claiming a treaty based credit requires reporting the worldwide estate to the Internal Revenue Service, not merely the American part. Families who have never disclosed their full balance sheet to a foreign administration tend to find that a larger decision than the tax it saves. It is also worth being clear about which instrument is being read. The estate convention is a separate treaty from the income tax convention the group’s advisers already keep on file, and the terms that govern this credit are not in the document they are used to consulting.
The transfer certificate, and why the money stops
The provision that turns a tax question into a family problem is administrative rather than substantive. A United States custodian, transfer agent or bank will generally not release the assets of a deceased nonresident until it receives a transfer certificate from the Internal Revenue Service confirming that the estate tax position has been settled or that no tax is due.
The Internal Revenue Service states that the time frame for processing the affidavit and supporting documents is twelve to eighteen months from receipt of everything it needs. That is the period during which the position is frozen and the heirs cannot sell, cannot rebalance and cannot fund the tax from the asset that generated it.
The documentation requested is granular. It includes a list of every United States asset in which the decedent had an interest at death with date of death values, account numbers for American bank and investment accounts, the decedent’s citizenship and residence at death, whether the decedent ever naturalized, and whether any American bank account was used in connection with a United States trade or business. Assembling that after a death, from Europe, in a second language, is the part nobody budgets for.
What actually changes the outcome
The regime rewards decisions taken while the investor is alive and healthy. Holding American equities through a non-United States corporation removes them from the estate under section 2104(a), because the shares in the estate are then shares of a foreign company, at the cost of running that company properly and accepting its income tax consequences. Holding American real property through a structure is a different and heavier analysis, and it is not solved by moving the account.
Where a treaty applies, the pro rata credit is often the largest single item available, and it is claimed on a return rather than granted automatically. Where it does not, the exempt band is 60,000 dollars and the planning has to be done in the ownership chain rather than in the will.
The failure mode is consistent across the mandates we see. Nobody made a decision to expose the estate. A portfolio was opened at an American broker because the platform was good, a holiday property was bought in a personal name because the notary suggested it, and neither act was reviewed against a threshold that has stood at 60,000 dollars while the assets multiplied. The review costs very little. The alternative is a family waiting eighteen months for a certificate, holding an asset they cannot touch and a bill calculated at rates reaching 40 per cent.