The US Estate Tax Trap for Non-Resident Australians — $60,000 vs $15 Million

If an Australian citizen dies while holding US-sited assets — US corporate stock, brokerage investments, US shares, or real property — the estate faces a federal estate tax exemption of just USD $60,000. Not $15 million. That's the standard exemption for US citizens and residents in 2026. Non-resident aliens (NRAs), which is what most Australian citizens are for US tax purposes, get a separate and drastically lower threshold.

Without treaty relief, a deceased Australian tourist with a US brokerage account worth $100,000 has $40,000 above the default $60,000 exemption; the final tax liability depends on treaty relief and allowable deductions. A family may discover the issue after the death, when a US financial institution freezes the account and requires estate-tax documentation before releasing the funds.

The Australian Dies in the US — Family Emergency Guide includes the full treaty relief calculation and IRS filing requirements so the family can claim the modified exemption before the tax bill arrives.

How the Trap Works

US federal estate tax applies to the worldwide estate of US citizens and residents, but only to US-sited assets of non-resident aliens. The critical distinction is what counts as "US-sited":

The trap catches two groups of Australians especially hard:

Expats and long-term workers who opened US brokerage accounts during their time in America. Even if they've returned to Australia, those accounts remain US-sited. A portfolio that grew from $50,000 to $200,000 over a decade now creates a $140,000 estate tax exposure at the NRA threshold.

Investors holding US equities directly through a US brokerage (not through an Australian-domiciled fund). The shares are US-sited because they're issued by US corporations. The same shares held through an Australian-domiciled managed fund or ETF are not US-sited — the fund is the legal owner, not the individual.

The Australia–US Tax Treaty Modification

The Australia–US estate tax treaty (entered into force 1 January 1954, last amended by the 2001 Protocol) modifies the $60,000 threshold for Australian residents. Under Article IV of the treaty as modified by the Protocol, the estate may claim a pro-rated version of the full US citizen exemption.

The formula:

Treaty-modified exemption = US citizen exemption × (US-sited assets ÷ worldwide estate)

For 2026, the US citizen exemption is $15 million. If the deceased's worldwide estate (all assets globally) is $1 million and their US-sited assets are $200,000:

$15M × ($200,000 ÷ $1,000,000) = $3 million

Since the US-sited assets ($200,000) are well below the treaty-modified exemption ($3 million), the estate owes zero US federal estate tax. Without the treaty claim, the estate would have $140,000 above the default exemption ($200,000 minus the $60,000 NRA exemption), before allowable deductions and other applicable rules.

The catch: the treaty benefit is not automatic. The executor must actively claim it by filing IRS Form 706-NA (United States Estate Tax Return for a Non-Resident Not a Citizen) and electing treaty benefits. If no return is filed, the $60,000 default may be applied and the estate may face tax.

Filing Requirements

Even if the treaty-modified exemption eliminates the tax, the estate must still file Form 706-NA if US-sited assets exceed $60,000. The form requires:

1. A complete inventory of the deceased's worldwide assets (to calculate the treaty ratio)
2. A valuation of all US-sited assets at the date of death
3. A copy of the death certificate
4. Form 8833 (Treaty-Based Return Position Disclosure) and a statement electing treaty benefits under the Australia–US protocol

Filing deadline: 9 months after the date of death. A six-month extension may be available if requested before the due date.

Who prepares it: A US-based estate-tax professional experienced with NRA estate tax returns. This is a tax filing, but treaty calculations and related estate issues may require specialised professional counsel. Typical professional fees: USD $3,500–$7,500.

The IRS Estate Tax Closing Letter

Some US financial institutions may require an IRS estate tax closing letter or a transfer certificate under IRC §6325 before releasing NRA estate assets. IRS instructions say to wait at least 9 months after filing Form 706-NA before requesting an estate tax closing letter.

This can create a painful bottleneck in cross-border estate settlement: the family may not access the US assets until the IRS processes the return, even if the treaty-modified exemption means the tax bill is zero.

State-Level Estate Taxes

In addition to the federal estate tax, some US states may impose their own estate, inheritance, or succession taxes. The research specifically flags New York and California as states to check; state-level returns are separate from the federal filing and are not covered by the Australia–US treaty.

If the deceased held real property or tangible personal property in one of these states, a state-level tax may apply in addition to any federal tax. State estate tax returns are filed separately and are not covered by the Australia–US treaty.

Who This Is For

• Australian families who've learned that a deceased family member held US brokerage accounts, shares, or real property
• Executors filing IRS Form 706-NA for the first time and trying to understand whether the treaty eliminates the tax
• Australians who hold US investments directly and want to understand their estate tax exposure while they're still alive
• Financial advisors counselling Australian expatriates or investors on US-sited asset structuring

Who This Is NOT For

• US citizens or people domiciled in the US for estate-tax purposes — different rules apply, including the $15 million 2026 exclusion for US citizens and residents
• Australians whose only US connection was a bank deposit (savings/checking) — some deposits may be exempt for NRAs, depending on their classification
• Estates where all US-sited assets are below $60,000 — no filing is required and no tax is owed

How to Avoid the Trap

Before death (for Australians holding US assets):

• Hold US equities through an Australian-domiciled ETF or managed fund rather than directly in a US brokerage account. The fund, not the individual, is the legal owner of the US shares.
• Consider the total value of US-sited assets relative to your worldwide estate. If the treaty-modified exemption would cover your exposure, document your worldwide assets so your executor can file the treaty claim.
• Certain US bank deposits may be exempt; confirm the account's classification rather than assuming all deposits are excluded.

After death (for the executor):

• File Form 706-NA within 9 months, even if you believe no tax is owed, because estate-tax documentation may be required to release the assets.
• Engage a US estate-tax professional experienced with NRA estate returns — this is a niche speciality and general-practice practitioners may not know the treaty provisions.
• Don't wait for the Australian estate settlement to be complete before filing the US return. The two processes run independently, and the IRS processing time is the longest single bottleneck.

Frequently Asked Questions

Does the $60,000 threshold apply to all assets or just investments?

Only to US-sited assets as defined by the Internal Revenue Code. Certain US bank deposits, US government bonds, and US life insurance proceeds may be exempt for non-resident aliens, depending on the applicable rules. The threshold applies to US real property, US corporate stocks, and tangible personal property physically located in the US.

What if the deceased was an Australian with a US green card?

A green card alone does not settle US estate-tax domicile. If the deceased was domiciled in the US for estate-tax purposes, the estate is subject to worldwide-asset rules and the applicable $15 million 2026 exclusion; the NRA trap may not apply.

Can the treaty-modified exemption result in zero tax even on large US portfolios?

Yes, frequently. The treaty ratio depends on worldwide assets, not just US assets. An Australian with a $3 million worldwide estate (superannuation, Australian property, bank accounts) and a $500,000 US brokerage account gets a treaty-modified exemption of $15M × ($500K ÷ $3M) = $2.5 million. Since $500,000 is well below $2.5 million, the tax is zero — but the estate still must file Form 706-NA and obtain the required estate-tax documentation.

What happens if the executor doesn't file and just tries to close the US account?

The US financial institution may withhold the assets pending an IRS transfer certificate or estate-tax closing letter. Ignoring the filing requirement doesn't avoid the tax — it can delay release of the US assets and may result in penalties and interest.

Does Australia tax the same assets?

Australia does not impose estate tax or inheritance tax. However, Australian capital gains tax (CGT) may apply when estate assets are eventually sold by beneficiaries (superannuation death benefits also have their own tax treatment based on the beneficiary's dependency status). The Australia–US treaty includes provisions to avoid double taxation, but the executor must actively claim them on both sides.

The Australian Dies in the US — Family Emergency Guide covers the complete estate tax calculation with the treaty relief formula, the IRS filing requirements, and how the US estate tax process interacts with the Australian probate and superannuation claim timelines.