In brief
The US imposes estate tax on the US assets of a person who is not its citizen or resident, including real estate and shares of US companies. A US citizen enjoys an exemption of $15 million in 2026, but for a non-resident the effective exemption is only $60,000, and the rates reach up to 40%. There is no estate tax treaty between Israel and the US, so an Israeli investor who holds a property in his own name is fully exposed. The exposure can be reduced with early planning, such as non-recourse financing, life insurance or a suitable holding structure.
Key takeaways
- 1For a non-resident, the unified credit is $13,000, which is equivalent to an exemption of only $60,000. Above that amount, graduated rates of 18% to 40% apply.
- 2Israel has no estate tax, and there is no estate tax treaty between Israel and the US. Therefore there is no credit in Israel and no treaty relief.
- 3Real estate in the US and shares of US companies are US assets. Ordinary bank deposits and life insurance proceeds are not treated as such.
- 4A US LLC does not solve the problem with certainty, and the status of partnership interests for this purpose has not been decisively settled.
- 5Possible planning routes: a non-recourse mortgage, life insurance, a foreign holding company and an irrevocable trust. Each of them has a price.
What is the US estate tax, and why does it concern Israeli investors?
The US estate tax (Estate Tax) is a federal tax on the value of the assets a person leaves at death. US citizens and residents are taxed on all their property worldwide, but enjoy a very high exemption: $15 million in 2026, under the law signed on July 4, 2025. A person who is not a US citizen or resident is taxed only on assets located in the US, but with a meager exemption.
Many Israelis are unaware of the exposure, because Israel has no estate tax and no dedicated gift tax. But when it comes to a property in the US, US law applies to the property regardless of Israeli law. Beyond that, there is no treaty between Israel and the US to prevent double estate taxation. Israel does not appear on the list of countries that have such a treaty with the US, according to the Form 706-NA instructions. The income tax treaty between the countries also does not apply to estate tax.
Israel has no estate tax, and there is no estate tax treaty between Israel and the US. Therefore there is no credit in Israel and no treaty relief.
What is the exemption for non-residents, and how much is the actual tax?
The direct answer: a non-resident has a unified credit (Unified Credit) of $13,000, equivalent to an exemption on the first $60,000. Above that amount the tax is calculated according to a graduated rate table, which starts at 18% and reaches 40% on the amount above one million dollars. The estate must file a return (Form 706-NA) if the value of the US assets on the date of death exceeds $60,000.
| Value of taxable US assets (after deductions) | Tax under the unified table | Less credit ($13,000) | Tax payable |
|---|---|---|---|
| $60,000 | $13,000 | $13,000 | 0 |
| $500,000 | $155,800 | $13,000 | $142,800 |
| $1,000,000 | $345,800 | $13,000 | $332,800 |
The figures in the table are calculated according to Table A in the IRS Form 706 instructions, as of October 2026, and are for illustration only. In a real case, debts and expenses must be deducted under the rules described below, and other US assets such as shares must be added. The implication is clear: on an investment apartment worth half a million dollars, the heirs may pay about 28% of its value.
A US citizen who bequeaths the same apartment will pay no estate tax at all, because his exemption in 2026 is $15 million. For a non-resident, the $60,000 exemption has not been updated for decades.
Which assets are considered a “US asset” for estate tax purposes?
The test is the location of the asset (Situs), not the decedent's place of residence. According to the IRS and the Form 706-NA instructions:
| Type of asset | Subject to US estate tax? | Notes |
|---|---|---|
| Real property in the US | Yes | Includes apartments, houses, commercial properties and land |
| Tangible personal property physically located in the US | Yes | For example furniture and contents in the property. There is a narrow exception for works of art on exhibition |
| Shares of a US company | Yes | Even if the share certificates are held outside the US or in a trustee's name |
| Deposits in a US bank | Generally no | Provided they are not connected with an active US business |
| Life insurance proceeds on the life of a non-resident | No | Treated as property outside the US |
| Shares of a foreign (non-US) company | Generally no | Provided the company operates as a genuine entity |
| Interests in an LLC or a partnership | Uncertain | There is no clear-cut determination. The IRS may argue that the interests are a US asset when the partnership operates in the US |
Does an LLC protect against estate tax?
Not with certainty. A single-member LLC is “transparent” for income tax purposes, and there is a real concern that for estate tax purposes too the owner will be seen as the one who holds the property directly. An LLC with several members is classified as a partnership, and the status of partnership interests for estate tax purposes has not been decisively settled in legislation or case law. Some experts believe that a partnership formed outside the US, which does not dissolve on the death of a partner, gives a better position. This too is not certain.
The conclusion: someone who chose an LLC for liability protection or income tax reasons needs to deal with the estate issue separately and not assume that it has been solved.
What planning options exist for an Israeli investor?
There is no single perfect solution. Each tool lowers the exposure to estate tax while adding cost, complexity or another tax. These are the main tools:
- Non-recourse financing (Nonrecourse): debt secured only by the property, with no personal guarantee, can according to experts reduce the value of the property that is taxable in full. Ordinary debt with personal liability is deductible only proportionally, according to the ratio between the US assets and all the assets worldwide, and provided that data on the entire estate is presented to the authorities. With such a mortgage you need to make sure its structure meets the requirements.
- Life insurance: life insurance proceeds on the life of a non-resident are not a US asset. A policy in the amount of the expected liability can ensure that the heirs have the liquidity to pay the tax without selling the property under pressure.
- Foreign holding company (Blocker): shares of a foreign company are generally a foreign asset, so holding through such a company can neutralize estate tax. The price: US corporate tax of 21% instead of preferential capital gains rates, a possible Branch Profits Tax, management costs, and also tax questions in Israel, for example the controlled foreign company rules. The company must operate as a genuine entity and not as a shell.
- Irrevocable trust: a properly designed trust may remove the property from the estate. In Israel complex tax rules apply to trusts, so the solution requires integrated planning in both countries.
- Gift planning: a gift of US real property by a non-resident is subject to US gift tax. By contrast, according to some experts, a gift of intangible assets, such as partnership interests, is not subject to gift tax. The annual gift exclusion is $19,000 per recipient in 2026. The area is sensitive and requires professional guidance.
- Spousal planning: the marital deduction is permitted only when the surviving spouse is a US citizen, or when the property passes into a special trust (QDOT), unless a treaty provides otherwise. For most Israeli couples this deduction will not be available.
What actually happens after the death of an investor with a US property?
Beyond the tax itself, there is also a legal and administrative process. It is worth knowing it in advance:
- Filing deadline: Form 706-NA is filed within 9 months of the date of death. An automatic 6-month extension can be requested on Form 4768.
- Full disclosure of worldwide assets: in order to enjoy the deductions, the estate must present to the IRS verified data on all the assets worldwide, for example a certified copy of the probate order or a list of the estate's assets.
- Heirs' liability: according to the IRS, unpaid estate tax can be collected from whoever received property from the estate.
- Local probate: transferring a property registered in the decedent's name usually requires a proceeding in the state where the property is located, in addition to the Israeli probate order. An LLC operating agreement with clear succession provisions can simplify this process, even when it does not save tax.
- Closing letter: an estate tax closing letter (ETCL) is issued only on request, for a fee of $56 (since May 21, 2025), and it is recommended to submit the request at least 9 months after filing the return.
Anyone who also holds shares of US companies in an investment account, including US exchange-traded funds, adds their value to the taxable base. The exposure of many Israeli investors is greater than they estimate.
Before you sign: how we accompany estate planning for a US property
The holding structure is cheapest to set before the purchase, because moving an existing property to a different structure may trigger income tax, FIRPTA withholding and state transfer tax. In every transaction we map the expected estate tax exposure, check together with the US attorney and accountant which tool fits the scale of the investment and the family structure, and coordinate the Israeli will and the documents of the US entity so that the heirs are not left with a stuck property and a tax debt.
The information in this article is general and does not constitute legal advice or tax advice for a specific case. International estate planning depends on personal circumstances and on current law in both countries, and should be carried out with qualified attorneys and accountants.
Frequently asked questions
Is an Israeli who dies holding an apartment in the US subject to estate tax?
Yes, if the value of his US assets exceeds $60,000. The US taxes non-residents on assets located in its territory, at rates reaching up to 40%. There is no estate tax treaty between Israel and the US that eases the liability.
Does the $15 million exemption apply to Israelis?
No. The $15 million exemption in 2026 applies to US citizens and residents. Someone who is not a US citizen or resident receives a credit of only $13,000, which is equivalent to an exemption of $60,000.
Is money in a US bank account subject to estate tax?
Generally not. Deposits in a US bank that are not connected with an active US business are treated as property outside the US for estate tax purposes. Shares of US companies, by contrast, are treated as a US asset.
Does a mortgage reduce estate tax?
Yes, but it depends on the type of debt. According to experts, a non-recourse mortgage secured only by the property can reduce the taxable value in full. Ordinary debt is deducted only proportionally, and provided that data on the entire worldwide estate is presented.
When must a US estate tax return be filed?
Form 706-NA is filed within 9 months of the date of death, when the value of the US assets exceeds $60,000. An automatic 6-month extension can be requested on Form 4768.
Read next · 9 min readTitle Insurance and Escrow in a US Transaction: What Protects You and What Does NotTitle insurance and escrow in the US: what the owner's policy covers, exceptions to check, how the escrow account works and how to defend against wire fraud.Read the guideSources
- IRS - Some nonresidents with U.S. assets must file estate tax returns
- IRS - Instructions for Form 706-NA (09/2025)
- IRS - Instructions for Form 706 (Table A, Unified Rate Schedule)
- IRS - What's new, Estate and gift tax
- SF Tax Counsel - When foreigners own U.S. real property: planning for the estate and gift tax
- PwC Worldwide Tax Summaries - Israel, Other taxes
The information in this guide is general in nature and does not constitute legal or tax advice on any specific transaction. Every transaction is assessed on its own facts.