The United States hosts the largest NRI diaspora in the world. American estate tax rules, state-level probate, and the interaction with Indian assets create a planning landscape that needs careful navigation. A clear walkthrough.
The United States imposes federal estate tax on the worldwide estate of US citizens and US-domiciled residents. The exemption is generous by global standards — $13.99 million per individual in 2026 — but the rate above the exemption is 40%, and the exemption is scheduled to drop to roughly half its current level after 2025 unless extended.
For most middle-income Indian-American NRIs, this exemption is more than enough to cover the entire estate, so federal estate tax is not a practical concern. But for high-net-worth NRIs — successful entrepreneurs, senior tech executives, doctors with established practices — the exemption can be exhausted, and serious planning is needed.
On top of federal estate tax, several US states levy their own estate or inheritance tax with lower exemptions. New York, Massachusetts, Oregon, Washington, Minnesota, Connecticut, and several others have state-level estate taxes. Maryland and New Jersey also have inheritance taxes (paid by the recipient). The state-level position can change the planning calculus significantly.
The estate tax treatment depends materially on the NRI's US status. A US citizen is subject to estate tax on worldwide assets, with the full exemption available. A US permanent resident (green card holder) who is domiciled in the US is also subject to estate tax on worldwide assets, with full exemption.
A non-US-domiciled individual (typically a visa holder — H-1B, L-1, F-1, etc., who has not formed an intention to remain permanently) is subject to estate tax only on US-situs assets. But the exemption is far lower — historically $60,000 — making US real estate, US stocks, and substantial US bank deposits highly exposed.
The shift from non-domiciled to domiciled status happens by intention plus residence — there is no bright-line test. NRIs in the US on long-term visas who have bought homes and started families have likely become US-domiciled even before getting their green card. This domicile shift has profound estate tax implications that need to be addressed.
The US does not have a single federal probate system. Probate is administered state by state, and each state has its own rules, court fees, and timelines. California's probate process is notoriously slow and expensive (often 9-18 months and 4-7% of estate value). Florida is moderately efficient. Texas is generally fast. New York is bureaucratic but manageable.
For NRIs owning property in multiple US states, ancillary probate may be required in each state where real estate is located. This multi-state probate is one of the strongest practical arguments for using revocable living trusts to hold US real estate — the trust avoids probate altogether.
For non-real-estate assets, beneficiary designations (on retirement accounts, life insurance, transfer-on-death brokerage accounts) bypass probate entirely. Keeping beneficiary designations current is one of the highest-leverage estate-planning actions a US-based NRI can take.
Revocable living trusts (often called 'living trusts' or 'inter vivos trusts') are a staple of US estate planning. The settlor creates the trust during life, transfers assets into it, and serves as the initial trustee. On death, a successor trustee takes over and administers the trust according to its terms.
The trust does not by itself save federal estate tax — the assets in a revocable trust are still includable in the settlor's gross estate for estate tax purposes. The trust's purpose is administrative: avoiding probate, ensuring continuity of asset management if the settlor becomes incapacitated, and maintaining privacy (probate is public; trusts are not).
For US-based NRIs with significant US real estate, a revocable living trust is almost always the right vehicle for the US portion of the estate. The Indian Will then deals with Indian assets, and the family benefits from probate avoidance on the US side and Indian-formalities compliance on the Indian side.
For NRIs whose worldwide estate exceeds the federal exemption (or who anticipate it will), several planning tools are commonly deployed. Marital deduction trusts (qualified terminable interest property trusts, or 'QTIPs') defer estate tax until the surviving spouse's death — useful where one spouse is a US citizen and the other is not (a non-citizen spouse does not qualify for the unlimited marital deduction without special trust structures like a Qualified Domestic Trust, or QDOT).
Irrevocable life insurance trusts (ILITs) hold life insurance policies outside the estate, ensuring the death benefit is not subject to estate tax. For NRIs with substantial term insurance bought during high-income years, an ILIT can preserve significant value for the family.
Annual gifting (currently $19,000 per donee per year as of 2025) and lifetime gifting using the unified credit are also used to reduce the size of the taxable estate over time. NRIs should be conscious of US gift tax rules, which interact with the estate tax exemption.
Most US-based NRIs hold residual Indian assets — a flat in the home city, mutual funds, NRE/NRO accounts, perhaps an inherited share of ancestral property. These Indian assets do not benefit from a US revocable trust (US trusts cannot hold Indian real estate without complex FEMA implications).
The standard structure is: a US revocable living trust for US assets, plus a separate Indian Will for Indian assets, each explicitly preserving the other. The Indian Will is drafted in compliance with Section 63 of the ISA and registered with the Sub-Registrar in the relevant Indian district.
FEMA implications need attention. When Indian assets transmit to a US-resident heir, FEMA regulates whether the proceeds can be repatriated, in what timeframe, and through what banking channels. The Indian executor needs to be aware of these requirements — failure can delay or block legitimate inheritance.
For US-based NRIs, beneficiary designations on retirement accounts (401(k), IRA, Roth IRA) and life insurance policies often constitute the bulk of the actual estate transfer. These designations override the Will — if your IRA beneficiary is your ex-wife and your Will leaves everything to your current wife, the IRA goes to the ex-wife.
Updating beneficiary designations after major life events (marriage, divorce, birth of children, death of a designated beneficiary) is one of the most important and most neglected aspects of estate planning. We routinely see estates where the beneficiary designations have not been updated in fifteen or twenty years.
Stretch IRA rules (which previously allowed inherited IRAs to be drawn down over the beneficiary's lifetime) have been substantially curtailed by the SECURE Act of 2019 — most non-spouse beneficiaries must now draw down inherited IRAs within 10 years. This affects both planning and the income tax exposure of the inheritance.
US citizens and residents are taxed on worldwide income — including income from Indian assets. The US-India Double Taxation Avoidance Agreement (DTAA) provides relief through foreign tax credits, but the administrative compliance is significant. NRIs returning to the US after a period of Indian residence need to think carefully about asset structuring to avoid double taxation and to keep compliance manageable.
Passive Foreign Investment Company (PFIC) rules are a particular hazard for US-based NRIs holding Indian mutual funds. Most Indian mutual funds are classified as PFICs for US tax purposes, with punitive tax treatment unless an annual mark-to-market election is made. Many US-based NRIs unknowingly hold PFICs and face significant tax exposure on eventual sale or inheritance.
FBAR (Foreign Bank Account Report) and FATCA reporting are also mandatory for US-based NRIs with foreign accounts above thresholds. The penalties for non-compliance are severe, and we have seen cases where inherited Indian assets triggered FBAR catch-up filings for the heir.
For US-based NRIs with worldwide estate under the federal estate tax exemption: dual structure — US revocable living trust for US assets, Indian Will for Indian assets, each preserving the other. State-level estate tax planning if you live in a state with such tax.
For US-based NRIs with worldwide estate above the federal exemption: more sophisticated structure required — irrevocable life insurance trust, possibly a credit shelter trust or QTIP, careful attention to gift tax planning. Indian Will continues to operate for Indian assets but is one piece of a broader plan.
For US-based NRIs planning to return to India: timing matters. The shift from US-domiciled to India-domiciled changes estate tax exposure dramatically. Coordinated planning before the return is far more efficient than scrambling after.
Error one: assuming the Indian Will will be honoured in the US without further proceedings. It will not — the Indian Will must be 'exemplified' (proven) in a US court if it is being relied on for US assets, which is slow and not always successful.
Error two: holding Indian real estate through a US revocable trust. FEMA does not permit US trusts to hold Indian real estate, and the workarounds are complex and expensive. Keep Indian real estate in personal name or in Indian trust structures.
Error three: failing to update beneficiary designations after life events. The Will may be perfect, but the IRA goes wherever the designation says.
Error four: ignoring state estate tax. The federal exemption is the headline number, but for NRIs in New York, Massachusetts, or Washington, the state exemption may bind first and require its own planning.
For any US-based NRI with assets exceeding $2 million combined (US + India), or with any business interests, we strongly recommend coordinated engagement of a US estate planning attorney and an Indian estate lawyer. The US attorney handles the US Will / trust / tax planning. We handle the Indian Will and the cross-border coordination.
Joint conversations are valuable. Many of the most efficient planning moves require both sides to be aligned — for instance, the way an Indian inheritance enters the US tax basis calculation, or the way US life insurance interacts with Indian-resident beneficiaries.
The cost of coordinated advice is usually under $10,000 combined. The cost of uncoordinated planning, paid by the family after the estate is opened, is often ten to fifty times that.
US-based NRIs are one of our largest client segments. The patterns we see are consistent: families that planned proactively and coordinated across jurisdictions, and families that drafted documents independently in each country and discovered the gaps too late.
The investment in coordinated planning is modest. The benefit — administrative speed, tax efficiency, family clarity — is substantial. We are happy to be the Indian-side counterpart to your US estate attorney, or to recommend US-side counsel where you do not yet have one.
Whatever you do, please do something. The US-based NRI population has, in our observation, the highest rate of 'meant to draft a Will but never got around to it' of any group we encounter. The stakes — especially for families with US-citizen children inheriting Indian assets — are too high to leave to default rules.
Beyond estate tax, the US imposes gift tax on substantial lifetime transfers — currently the same unified credit applies, with annual exclusions (currently $19,000 per donee in 2025) available without using lifetime exemption. For US citizens making gifts to non-US-citizen spouses, the annual exclusion is higher ($190,000 in 2025).
Gift tax has particular implications for NRIs sending money to family in India during life. Large remittances above the annual exclusion thresholds can trigger gift tax filings (Form 709), and while no tax is typically due until lifetime exemption is exhausted, the filing and tracking requirements are mandatory.
Coordinated gift planning during life — alongside the testamentary planning — can significantly reduce the eventual estate tax exposure for high-net-worth NRIs.
Many US-based NRIs eventually return to India, either at retirement or for family reasons. The transition is significant for estate planning. As US domicile is replaced by Indian domicile, the worldwide estate tax exposure ends — but only after the domicile shift is established (which takes years and intentional action).
Timing is everything. Substantial gifts made just before the transition, or trust structures set up during the transition window, can preserve significant value. Conversely, holding onto US assets after return creates ongoing US tax exposure as the assets remain US-situated.
A coordinated 'returning NRI' plan typically takes 12-18 months to execute properly, and the cost savings from doing it right (vs. doing it casually) can be in the seven figures for substantial estates.