Indians with US assets? Here’s how to plan for estate and gift taxes

Indian families who have members based in or are citizens of the US face unique and complex estate and tax planning needs, and ignorance often leads to high taxes and penalties. Therefore, careful planning is essential to minimize potential tax liabilities.

Indians who own US assets may be subject to US estate taxes, regardless of their citizenship or residency status, even if they live outside the US.

“US persons” (i.e., US citizens and resident aliens) are subject to gift, estate, and generation-skipping transfer taxes on their worldwide assets. Others who are non-US citizens, first have to determine whether they are considered a resident alien or a non-resident alien. This classification depends on factors such as time spent in the US, visa status, and personal connections, etc. This is important since nonresident aliens are only subject to gift & estate taxes on US-located assets (commonly referred as US situs assets).

Non-resident aliens (NRAs) would typically be Indian citizens who temporarily live in the US and do not intend to make it their permanent residence. Usually, for NRAs most of the wealth may be located outside the US, NRAs remain subject to specific US gift and estate tax on their US-based assets, such as real estate, stocks in US companies, etc.

Also Read: Your guide to investing in the US and global stocks through the Liberalized Remittance Scheme

There is a generous US gift and estate tax exemption of $13.99 million (as of 2025), which is not available to NRAs. The exemption for NRAs is limited to $60,000. This is very insignificant for HNIs who end up owning US stocks, real estate and without adequate planning they end up paying taxes in the US. India does not have any estate tax treaty with the US, so such taxes are not creditable back in India.

While appropriate planning and structuring can help mitigate gift and estate taxes (one must consult a tax expert for this), an important thing to note is that life insurance policies issued by US-based life insurance companies to NRA (as policyholder and insured), any transfers during their lifetime and the payment of death benefits are generally exempt from US estate taxes. There are some Indian nuances that need to be met before buying such policies. However, using US life insurance to address estate tax disparities is something worth exploring.

Also Read: How estate planning can help you protect your legacy

Life insurance offers several advantages 

1. Covering estate taxes: US-denominated life insurance can provide the liquidity necessary to cover estate taxes, helping to preserve the estate’s value without the need to liquidate assets.

2. Portfolio diversification and risk mitigation: Permanent whole life insurance policies build cash value at a guaranteed rate and are considered conservative financial products. US-denominated cash value may serve as a hedge against economic downturns, fluctuating exchange rates, and geopolitical risks in the policyholder’s home country.

3. Asset protection: Life insurance policies are typically protected from creditors and bankruptcy, offering additional protection for foreign nationals’ assets.

4. Business succession: For business owners, a buy-sell plan funded by life insurance can ensure a smooth transition of the business in case of death.

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Unlike US citizens and residents, who often transfer ownership of life insurance policies to an irrevocable trust to avoid estate taxes, non-resident aliens (NRAs) can directly own a US life insurance policy without facing estate taxes on the death benefit. However, an Irrevocable Life Insurance Trust (ILIT) can be established to serve as the owner and beneficiary of the life insurance policy in the US. This arrangement is particularly beneficial if the insured is an Indian national, while their family members, especially their children aspire to be US citizens.

One must be mindful of US estate and gift taxes and watch out for federal and state taxes. It is important to stay compliant and ensure a smooth transfer of your wealth to your family, while avoiding the complexities associated with US estate taxes.

Suraj Malik is managing partner at Legacy Growth, and Monika Wadhwa is partner at Legacy Growth.

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