Key Takeaways
- Shares of a foreign corporation are not US situs assets — not subject to estate tax
- A foreign corporation holding US assets acts as an “estate tax blocker”
- Key drawback: double taxation on income through the corporate layer
- Transferring already-held US assets to a blocker has significant tax implications
How Blocker Structures Work
US situs assets include US real estate, tangible property in the US, and shares of US corporations. Shares of foreign corporations are not US situs assets. By holding US assets through a foreign corporation instead of directly, the estate tax inclusion is blocked.
The Double Taxation Drawback
The foreign corporation pays tax on income received from US sources, and dividends to the individual are taxed again. US tax treaties may provide different rates depending on whether the investor is a company or individual.
What If You Already Hold US Assets Directly?
Transferring existing US stocks or real estate to a foreign blocker involves capital gains tax, and for real estate, potential transfer tax and property tax implications. Planning should ideally be done before the investment, not after.