Many Asian families now have members in Australia, the United States and Asia at the same time. A child may study or work in the US, marry a US citizen or obtain a green card. Once a family member becomes a US citizen or US resident for tax purposes, the United States can tax them on their worldwide income and gains, and US estate and gift tax may apply to their worldwide estate. That makes the timing and structure of family wealth transfers much more important.
The US estate and gift tax in outline
- US citizens and domiciliaries are subject to US estate and gift tax on worldwide assets, with a large lifetime exemption, which is US$15 million per person from 2026. The top rate is 40%.
- Non-residents who are not US citizens are subject to US estate tax only on US-situs assets, such as US real estate and shares in US companies, with a much smaller exemption of US$60,000 unless a treaty provides otherwise.
- Australia and the United States have an estate tax treaty, which can affect the outcome for Australian residents. Treaty benefits depend on the facts and should be checked by US advisers.
Why pre-immigration planning matters
The position of a family member who is about to become a US person can be very different before and after the change. Gifts and trust arrangements made before US residency begins, by parents who are not US persons, may be treated differently from those made afterwards. Conversely, a US person who is a beneficiary of a foreign trust may face US reporting obligations and, on distributions of accumulated income, US tax charges that resemble Australia’s own rules for foreign trusts. See foreign trusts and companies for Australian residents.
The Australian side
- Wills. A will that leaves assets to a US-based child outright may expose those assets to US estate tax on the child’s death. A testamentary trust drafted with US advice can sometimes avoid this.
- Trusts. Australian family trusts with US beneficiaries may need amended distribution and reporting arrangements.
- Property and capital gains. Australian property passing to a US resident beneficiary remains subject to Australian capital gains tax on sale, and the US may also tax the gain.
- Coordination. Each country’s rules on residency, trusts and inheritances must be considered together. See one family, several countries.
How we assist
We advise on the Australian legal components of planning for families with members in the United States, including wills, testamentary trusts and family trust deeds, and work alongside US tax and estate planning attorneys, who should advise on US law. This article is general information only. Justin Chua is a Nationally Accredited Mediator and an Affiliate member of STEP, the worldwide professional body for trust and estate practitioners.
Frequently asked questions
Does US estate tax apply to non-US families?
It can. Non-residents who are not US citizens may be subject to US estate tax on US-situs assets, such as US real estate and shares in US companies, with only a small exemption unless a treaty applies.
What changes when a child becomes a US citizen or green card holder?
The child may become subject to US tax on worldwide income and, potentially, US estate and gift tax on worldwide assets. Inheritances and trust distributions they receive may need different planning.
Can a will reduce US estate tax for a child living in the US?
In some cases a testamentary trust, drafted with advice from US attorneys, can hold the inheritance in a way that is not included in the child’s US estate.
Is there an Australia–US estate tax treaty?
Yes. It can affect the outcome for Australian residents with US assets, but its application depends on the facts and should be confirmed by advisers in both countries.
Chua Tan Associates advises families, executors, trustees and their professional advisers on estate planning, estate administration and estate disputes, in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice. Victorian law unless stated otherwise.
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