US Estate Tax on RSUs for NRIs: The $60,000 Trap You Must Know

What Is US Estate Tax and Who Qualifies as a Non-Resident Alien?

US estate tax is a federal tax on the transfer of your assets to your heirs when you die. It is not a tax your heirs pay on receiving the money. It is a tax on the estate itself, before distribution.

For US citizens and people domiciled in the US, the estate includes worldwide assets. For non-resident aliens (NRAs), the estate tax only applies to US-situated assets. That sounds like a narrow scope. But for an NRI with RSUs from a US company, it creates a real and often unplanned liability.

The key word here is domicile, not residency.

Domicile vs. Residency for Estate Tax Purposes

Income tax and estate tax use different tests. For income tax, you become a US resident through the substantial presence test or a green card. For estate tax, what matters is domicile.

Domicile requires two things: physical presence in the US and the subjective intent to remain in the US indefinitely. This is a much higher bar.

Most NRIs on H1B visas who plan to eventually return to India do not meet the domicile test. That means they qualify as non-resident aliens for estate tax, even if they have been filing US income tax returns as residents for years.

Green card holders are in a different position. Holding a green card often indicates an intent to stay permanently, which can make you a US domiciliary for estate tax purposes. This is a complex area, and the analysis depends on your specific facts. Consult a qualified attorney if you hold a green card.

Are Your RSUs Subject to US Estate Tax?

US-situated property means assets that are legally considered to be located in the United States for estate tax purposes. This is not about where your brokerage account is held or which country you live in. It is about the asset itself.

Shares of US corporations are always US-situated property for estate tax purposes. It does not matter if you hold them in an Indian brokerage account or through an overseas depository. If the company is incorporated in the US, the shares are US-situated assets.

This directly affects NRIs who hold RSUs.

Vested RSUs

Once your RSUs vest, they become actual shares of the company. You own stock. Those shares carry full US estate tax exposure.

Take Rahul, a software engineer at a Bay Area company. Over four years, he has accumulated $400,000 in vested shares through his RSU grants. If Rahul were to die today while on an H1B visa with an intent to return to India, his estate would owe up to $136,000 in US estate tax, calculated as 40% on $340,000 (the $400,000 minus the $60,000 exemption). That is money his family cannot recover from India, because India has no estate tax of its own and provides no credit against US estate tax paid.

Unvested RSUs

Unvested RSUs are a promise of future shares, not shares themselves. Whether they count toward your taxable estate depends on your employer's RSU plan.

If the unvested RSUs are forfeited at your death, they fall outside the estate. If the plan accelerates vesting on death, the shares become part of the taxable estate. Check your RSU plan document or ask your employer's HR team how your plan handles this. Do not assume.

How Much Tax Could Your Family Owe?

The US estate tax uses a graduated rate structure. It starts at 18% and rises to 40% on the taxable amount above $1 million. In practice, for an NRI with a concentrated RSU portfolio above $60,000, the effective rate is typically close to 40%.

Using Rahul's example: $400,000 in vested shares minus the $60,000 exemption leaves $340,000 taxable. At 40%, the estate tax owed is approximately $136,000. That amount must be paid in cash within nine months of the date of death. If the estate does not have cash available, the executor may need to sell the shares under time pressure to meet the deadline.

The form required is Form 706-NA (United States Estate and Generation-Skipping Tax Return for Nonresidents). Your executor or personal representative must file this if your US-situated assets exceed $60,000. A 6-month extension on the filing deadline is available by submitting Form 4768, but the extension is for filing only. The tax itself is still due within nine months.

India does not impose any estate or inheritance tax. However, the US estate tax paid does not generate a foreign tax credit you can use in India. The US-India tax treaty covers income taxes, not estate taxes.

Does the US-India Tax Treaty Protect You?

No. This is one of the most common misconceptions in NRI financial planning.

The DTAA (Double Taxation Avoidance Agreement) between the US and India is an income tax treaty. It helps NRIs avoid being taxed on the same income by both countries. It covers things like salary, dividends, interest, and capital gains.

Estate tax is completely separate. The DTAA provides no relief on US estate tax for Indian nationals.

The US has estate tax treaties with 15 countries. India is not among them in a way that meaningfully increases the $60,000 exemption. This means NRIs who hold RSUs in US companies have no treaty protection against the estate tax exposure.

For the official reference, the IRS estate tax page for nonresidents confirms that the $60,000 exemption applies to NRAs and that treaty benefits vary by country.

4 Strategies to Reduce Your Estate Tax Exposure

You do not have to accept this exposure as a given. There are legitimate strategies to reduce it. These require planning in advance, not after the fact.

Strategy 1: Gift Your RSU Shares While You Are Alive

This is one of the most powerful and underused strategies for NRIs. Here is why it works.

For US citizens, gifts of US stocks are subject to gift tax. For non-resident aliens, US stocks are considered intangible property and are exempt from US gift tax.

This means you can gift RSU shares to family members during your lifetime. Each recipient can receive up to $19,000 per year in 2025 without triggering any US gift tax. You can also gift up to $190,000 per year to a non-citizen spouse in 2025. These gifts remove the shares from your taxable estate permanently.

There are important considerations. The recipient will owe capital gains tax when they sell the shares, based on the cost basis at the time of the gift. This is a real tax cost, but often much lower than the 40% estate tax your family would otherwise face. Consult a tax advisor before executing gifts, especially for large transfers. These are among the broader tax saving strategies worth understanding as an NRI in the US.

Strategy 2: Sell RSUs and Reinvest in Non-US Assets

Non-US assets are not US-situated property. An NRA's Indian fixed deposits, NRE accounts, Indian mutual funds, and Indian real estate carry no US estate tax.

After selling RSUs, you can redirect proceeds into non-US investments. This reduces your US-situated asset base, which directly reduces the taxable portion of your estate. Note that selling RSUs triggers income tax and capital gains tax in the US. Factor those costs into the planning.

Strategy 3: Use UCITS ETFs Instead of US-Listed ETFs

Many NRIs sell RSUs and immediately reinvest in US-listed index funds like VOO or VTI. This is a common mistake from an estate tax perspective. Those ETFs are US-domiciled funds. They are US-situated property. Your estate tax exposure continues.

UCITS ETFs are funds domiciled in Europe, typically in Ireland or Luxembourg. They hold many of the same underlying US stocks, but the fund itself is not a US asset. As a result, UCITS ETFs are generally not considered US-situated property for estate tax purposes.

This strategy lets you maintain exposure to US equity markets while reducing your estate tax risk. Important caveat: UCITS domicile rules can change, and the tax treatment depends on your specific facts. Verify this approach with a qualified cross-border advisor before executing it.

Strategy 4: Get a Comprehensive Estate Plan in Place

The strategies above address asset positioning. A complete estate plan does more. It ensures your wishes are documented and your family can act quickly under stressful conditions.

For NRIs with assets in both the US and India, a comprehensive estate plan should include separate wills for US and Indian assets, correct beneficiary designations on US brokerage accounts, and clear documentation of your domicile status. Consider whether a trust structure is appropriate for your situation, though this requires professional legal advice.

Building a complete NRI estate plan goes beyond estate tax alone. It covers asset distribution, power of attorney, and cross-border compliance.

What You Should Do Right Now

Start with a clear picture of your exposure.

1. Add up all your vested US equity: RSUs, ESPP shares, and any other US stock holdings. If that number exceeds $60,000, you have estate tax exposure today.
2. Check your employer's RSU plan document to understand what happens to unvested RSUs if you die. Ask HR if you are not sure.
3. Review your gifting options. The annual gift tax exclusion resets every year. Starting a gifting plan now can meaningfully reduce your estate tax exposure over time.
4. Consult a cross-border estate planning attorney who understands both US and Indian rules. This is not a situation where a generic advisor will do.

Conclusion

The US estate tax exemption for a non-resident alien is $60,000. For a US citizen, it is nearly $14 million. If you hold RSU shares in a US company and you are not domiciled in the US, the gap between those two numbers represents real risk for your family. The tax on estate assets above that $60,000 threshold can reach 40%. Neither the DTAA nor any US-India estate tax treaty closes that gap for most NRIs. The good news is that this risk is manageable with early planning. Review your RSU balance, understand the estate tax non-resident alien rules that apply to you, and act before your exposure grows further.