How strategic estate planning can help Indians with US ties save big on taxes

Indians with relatives who are US citizens or based on the US face unique and complex US estate and tax planning rules, and ignorance around these often leads to high taxes and penalties. Careful planning is thus essential to minimise potential tax liabilities. That’s because 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 assets worldwide. Those who aren’t US citizens first have to determine whether they are considered a resident alien or a nonresident alien. This depends on factors such as time spent in the US, visa status, personal connections and so on. This is important since nonresident aliens are only subject to gift and estate taxes on assets located in the US (called ‘US situs assets’).

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Non-resident aliens (NRAs) are typically Indian citizens who temporarily live in the US and do not intend to make it their permanent home. Typically, most of their wealth is located outside the US. However, they are subject to specific gift and estate taxes on their US-based assets such as real estate, stocks in US companies, etc.

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 a very insignificant sum for high-net-worth individuals who own US stocks and real estate. Without adequate planning, they may end up paying high taxes in the US. India does not have an estate tax treaty with the US, so such are not creditable back in India.

Benefits of US life insurance

While appropriate planning and structuring can help mitigate gift and estate taxes (and one must consult a tax expert for this), it’s important to note that for life insurance policies issues to NRAs by US companies, any transfers during their lifetime and the payment of death benefits are generally exempt from US estate taxes. 

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There are some Indian exchange control nuances that need to be met before buying such policies, but using US life insurance to address estate tax disparities is worth exploring.

Life insurance offers several advantages in estate planning for NRAs:

• 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.
• Portfolio diversification and risk mitigation: Permanent whole life insurance policies build cash value at a guaranteed rate and are considered conservative financial products. The US-denominated cash value may serve as a hedge against economic downturns, fluctuating exchange rates, and geopolitical risks in the policyholder’s home country.
• Asset protection: Life insurance policies are typically protected from creditors and bankruptcy, offering additional protection for foreign nationals’ assets.
• 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.

Unlike US citizens and residents, who often transfer policy ownership to an irrevocable trust, NRAs can directly own a US life insurance policy without triggering estate taxes on the death benefit. Nonetheless, Indian nationals in the US whose family members, especially children, elect or aspire to be US citizens can make an irrevocable life insurance trust (ILIT) the owner and beneficiary of their US life insurance policy.

Also read: <a class="backlink" target="_blank" href="https://www.livemint.com/money/personal-finance/superannuation-fund-to-nps-transfer-tax-implications-superannuation-withdrawal-india-nps-vs-superannuation-fund-india-11746424436199.html" data-vars-page-type="story" data-vars-link-type="Manual" data-vars-anchor-text="This Pune resident saved ₹10 lakh in tax by transferring pension fund to NPS”>This Pune resident saved ₹10 lakh in tax by transferring pension fund to NPS