US wants or the President wants foreigner invest in the US. But, the US estate tax for a non-resident is nothing as noted below. There is a solution for you.
When non-residents of the United States accumulate significant U.S. situs assets—such as U.S. real estate, stock in U.S. corporations, or tangible property located in the U.S.—they may face unexpected estate tax exposure. Unlike U.S. citizens and residents, who enjoy a lifetime estate and gift tax exemption currently exceeding $14 million (2025), non-residents have only a $60,000 exemption for U.S. situs assets. This sharp disparity can create estate tax liabilities of up to 40% on the value of U.S.-based holdings.
One planning tool often considered in these situations is the life insurance trust.
Why Consider a Life Insurance Trust?
A life insurance trust, often called an Irrevocable Life Insurance Trust (ILIT), is a legal structure designed to hold life insurance policies outside of the individual’s taxable estate. For non-residents:
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Liquidity for estate taxes – U.S. estate tax is due nine months after death, and liquidity can be an issue if much of the estate is tied up in U.S. real estate or investments. Insurance proceeds can provide immediate liquidity to cover estate taxes, preventing a forced sale of assets.
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Asset protection – When structured properly, insurance proceeds are generally protected from creditors.
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Estate exclusion – By placing the policy in an ILIT, the death benefit is excluded from the taxable estate, maximizing wealth transfer to heirs.
Key Considerations for Non-Residents
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Trust Structure
The trust must be irrevocable, and the insured individual cannot retain “incidents of ownership” over the policy (e.g., rights to change beneficiaries). Otherwise, the proceeds may still be included in the taxable estate.
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Choice of Trustee
Selecting a U.S. trustee versus a foreign trustee has implications for U.S. tax law and reporting obligations. The trust could be treated as a domestic or foreign trust depending on control and administration.
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Funding the Policy
Premium payments made directly by a non-resident may trigger U.S. gift tax if not carefully structured. Alternatives, such as funding through offshore accounts or with foreign trusts, must be evaluated under both U.S. and home-country tax law.
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Treaty Relief
Some estate tax treaties (e.g., with Japan, the U.K., Germany, France, and others) provide relief that expands exemptions or reduces estate tax exposure. Where available, treaties should be reviewed before implementing an ILIT.
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Coordination with Global Planning
Since many non-residents maintain assets and beneficiaries across multiple jurisdictions, the ILIT should be integrated into the broader estate and inheritance tax planning strategy of the family.
Alternatives and Complements
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Holding U.S. assets through foreign corporations may shield them from estate tax but can introduce income-tax complications.
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Selling down U.S. assets before death is a direct but sometimes impractical option.
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Leveraging estate tax treaties may provide partial relief without additional structuring.
Often, the best approach is a combination of strategies, where life insurance is used not only as a tax tool but as a way to provide certainty and flexibility for heirs.
Final Thoughts
For non-residents with substantial U.S. situs assets, the estate tax risk is real and often overlooked. A properly designed life insurance trust can serve as a key pillar in an integrated cross-border estate plan, ensuring that heirs receive assets without disruption from liquidity shortages or unexpected tax bills.
CHI Border will introduce a group of professionals who can help you set up a Life Insurance Trust for you.
Disclaimer
This blog is published by CHI Border Inc. for general informational purposes only and does not constitute legal, tax, or financial advice. The concepts described may not be suitable for every situation, and outcomes depend on individual facts and applicable laws. Readers should consult qualified U.S. and foreign tax advisors before taking any planning action.