What Taxes will Non-U.S. Citizen Daughter have to Pay When Inheriting Our Estate?
My wife and I are both US citizens and intend to leave our entire estate to each other depending on who lives longer. I have a daughter who is a UK citizen living in Malta and she is scheduled to be the beneficiary of the estate when we have both passed. The estate is below the $6 million minimum after 2026. Is the estate or is she subject to tax on the estate? We are invested in IRAs, investment accounts and own our home.
No, neither your estate nor your daughter will be subject to federal estate tax. Your estate may be subject to state estate taxes depending on where you live.
Your daughter, however, will be subject to income taxation on IRA withdrawals and she must make those withdrawals within 10 years of inheriting your IRAs. This is true of all IRA beneficiaries. The difference for your daughter as a non-U.S. citizen is that she will be subject to a statutory minimum income tax of 30% that will be withheld when she takes withdrawals. Depending on your and your wife’s tax bracket, and the amount in the IRAs, you may want to accelerate your own withdrawals to make sure your daughter is not subject to this minimum.
I can’t comment whether the UK or Malta might impose any taxes.