If you own assets in the United States or expect to inherit assets in this country, it is essential to understand the legal and tax implications involved in the inheritance process.
The United States is one of the world’s most powerful economic powers, and American taxation is a crucial aspect of the American economy and the businesses operating within it. Federal and local taxation in the United States is complex and significantly impacts individuals and companies operating within the Country.
In recent years, many Israelis have encountered tax questions related to properties in New York, Los Angeles, Miami, New Jersey, Chicago, Boston, and more. Not a small part of this stems from the fact that Israelis inherit assets in the US. This means that they may at some point be required to pay U.S. estate and inheritance taxes.
Understanding U.S. law and international tax treaties is critical for businesses operating in the U.S. market and capitalizing on the economic potential of their operations there. Additionally, an early understanding of U.S. law and early planning for wills, residency, and lifetime gifts can significantly reduce exposure to tax payments when transferring assets between generations.
Furthermore, inheritance tax planning may prevent legal disputes, delays in the inheritance realization process, and unexpected demands from various authorities.
What Is the Difference Between Inheritance Tax and Estate Tax?
- Estate tax – imposed on the testator’s assets before they are transferred to his heirs.
- Inheritance tax – applies to all assets received by the heir.
Estate Tax in The U.S.
In the U.S., a federal estate tax applies to the estate of a deceased person before it is transferred to their heirs, depending on the value of the estate and the testator’s citizenship. Investors who hold assets in the U.S., even if they are not U.S. citizens or residents, are subject to an estate tax.
A U.S. citizen or resident is required to report all their assets worldwide (including assets in Israel) to calculate the value of the estate. A foreign citizen without U.S. citizenship is required to report all their assets in the U.S.. This tax applies to various assets, including U.S. real estate, securities of U.S.-incorporated companies, cash held in the United States, and more.
Estate tax is a progressive tax, meaning it increases as wealth increases. The amount of estate tax varies between American citizens and non-American citizens. Estates of American citizens are exempt from paying tax up to an amount of $13.99 million as of 2025. In contrast, estates of foreign citizens are exempt up to an amount of only $60,000, and the tax rate is up to 40% on the value of the property (not on the profit generated but on the value of the entire property). For example, owners of investment portfolios worth more than $60,000 in American assets, who are not American citizens, are subject to the estate tax.
What does this mean? If you are an Israeli resident with assets in the U.S., you may pay estate tax on these assets, even if you are not a U.S. citizen. Therefore, it is vital to prepare accordingly.
For more information on the subject, read the article “American Estate Tax.”
Federal Gift Tax
Gift tax is a crucial aspect of planning for intergenerational asset transfers. Often, when property owners are exposed to the amount of inheritance tax, the option of transferring assets as gifts during the testator’s lifetime arises, as they believe this is preferable to inheriting in the future. However, it should be considered that gifts may be taxable at the same or even higher inheritance tax rates.
A U.S. citizen is subject to federal gift tax on all gifts worldwide (both U.S. and foreign assets). There is an annual exemption ($19,000 per person as of 2025) and a lifetime exemption ($13.99 million in 2025 as part of the estate tax). A report form must be filed for gifts above the annual exemption, beyond the exemption from taxes according to the estate tax.
A foreign citizen without U.S. citizenship is liable for gift tax only on tangible assets located in the U.S. (e.g., shares of a U.S. company are exempt from gift tax). Unlike U.S. citizens, there is only an annual exemption of $19,000 per person in 2025. Beyond the exemption from taxes, there is an estate tax.
Therefore, early inheritance and gift tax planning are essential when transferring assets between generations. Proper planning allows you to maximize existing exemptions, significantly reduce tax liability, and ensure that assets are transferred to the next generation in an orderly and efficient manner.
Estate And Inheritance Tax in the Various U.S. States
In addition to the federal estate tax, some states impose additional estate taxes, while others also collect inheritance taxes.
For example, as of January 1, 2025, in New York State, the estate tax exemption is $7,160,000. If the estate is worth more than that, a tax will be levied. In New York, when the value of the estate exceeds even slightly 105% of the exemption amount (i.e., about $7.5 million), the tax is calculated on the entire estate, not just the portion that exceeds the exemption. Once you cross the exemption, a hefty tax of up to 16% is imposed on the entire estate.
In New York, there is no gift tax per person; however, if a person gives a gift (for example, property or a large sum of money) within three years before their death, the value of that gift will be included in the estate for estate tax purposes.
Inheritance Taxation in Israel vs. The United States
In Israel, unlike the U.S., there is no estate tax or inheritance tax. However, in some instances, a tax may be imposed on the full value of the inheritance received, for example, capital gains tax upon the sale of the property.
Tax Treaty Between Israel and The United States
The United States taxes the income of its citizens living abroad, even if they never visit its territory. Therefore, a tax treaty between Israel and the United States is crucial for American citizens residing in Israel or Israelis living in the United States.
A double taxation treaty is a bilateral agreement in which two countries determine the taxation rules that will apply to income and assets related to both countries. In addition, the treaties include principles for the exchange of information on tax matters between the countries.
Among other things, the treaty between Israel and the U.S. states that the country in which the taxpayer’s income was generated will receive primary taxing rights. In addition, the treaty states that the taxpayer’s country of origin will retain residual taxing rights over their income, even if it was not generated in its territory. That is, it will be able to tax the income but will be obligated to act to prevent double taxation, doing so through tax refunds, credits, or tax deductions.
To read the Israel-U.S. tax treaty in English on the Ministry of Finance website, click here.
Making A Will in The U.S. – The Key to Tax Savings and Avoiding Disputes
Inheritances do not always pass smoothly to their heirs. Sometimes it is necessary to take complex procedural steps to issue an inheritance order or obtain a permit to realize the assets.
Drafting a well-organized will is not just a matter of personal preference; it is an integral part of estate tax planning. A will can ensure that assets are passed smoothly and efficiently to heirs. The will should include the testator’s wishes, but should also be adapted to the requirements of the law so that its validity is not impaired.
When drafting a will, it is often possible to choose the law that will apply to it. This choice can have a significant impact on the planning of the inheritance and its future implementation.
If you own assets in the U.S., we recommend creating a will to ensure a smooth transfer of assets. A will can prevent misunderstandings or lengthy legal processes and ensure that the process continues in an orderly manner even after the testator’s death.
Did You Receive an Inheritance in The U.S.? 7 Steps to Properly Realize an Inheritance from The U.S.
1. Clarification of Factual and Legal Background
First, you must check the type of asset that is to be inherited, its location, the identity and status of the heirs, the value of the asset, and more.
2. Checking the Date and Location of the Inheritance Realization
It is necessary to examine whether it is worthwhile to realize the asset now, and if so, where it should be realized – in the U.S. or Israel.
3. Regulatory and Banking Aspects
It is recommended to check the costs of money transfers, determine if it is necessary to open an account in the U.S. or another country to transfer funds, and identify any required approvals.
4. Planning the Transfer of the Asset
It is necessary to consider whether to transfer the property itself or its consideration, and to determine the tax implications, including exemptions and deductions.
5. Avoiding Double Taxation
In light of the existence of a double taxation treaty, it is recommended to check whether a mechanism applies for crediting tax paid in the US against tax liability in Israel. It is essential to ensure that reporting is done correctly and accurately to avoid double payment.
6. Examination of Future Impacts on the Assets
It is recommended to examine the future effects on the asset. For example, in many cases, a future sale of the property will also be subject to capital gains tax in Israel.
7. Transferring the asset to Israel
Performing all necessary actions, submitting documents, dealing with banks in the US and Israel, and transferring the property.
How Can We Help?
The goal is to transfer the inheritance to heirs in Israel in the most cost-effective manner from a tax perspective, while addressing legal issues in both Israel and the U.S., as well as banking and regulatory concerns. For example, is it worth realizing a particular asset in the U.S. or transferring it to Israel? How can inherited money be transferred to a bank account in Israel? How can the various exemptions between heirs be utilized? Should gifts be given during life? Should a trust be established? And more. Strategic planning, following the law and tax treaties, is essential to minimize tax liabilities.
The firm of Nimrod Yaron & Co. has extensive experience in personally and professionally supporting Israelis with assets or inheritances in the U.S. – from the initial planning stage through dealing with authorities in the U.S. and Israel, to transferring the inheritance funds to the heir’s bank accounts.
We collaborate with all relevant professional entities in the U.S. and Israel, providing legal solutions tailored to both tax and banking perspectives, customized to the specific circumstances of each case.
If you have inherited an asset or wish to bequeath property in the U.S. in the future, our team of lawyers specializing in international taxation and inheritance law will be happy to advise you on this matter – contact us for an initial consultation.
Questions And Answers
Can you avoid the U.S. estate tax if I am not a U.S. citizen or resident?
As the article extensively states, even those who are not U.S. citizens or residents will be liable for estate tax on their U.S. assets that exceed the exemption amount. However, there are many ways to plan your estate wisely while taking advantage of benefits according to the provisions of the law.
it matter if the heir is a U.S. citizen or resident?
Regarding the Federal Estate Tax
The tax liability on the estate does not arise from the status of the heir but from the status of the testator. However, this may have implications for reporting, future planning of the inheritance, and other tax considerations. Therefore, it is crucial to consult with tax experts to ensure that the tax strategy is tailored to both the testator’s and the heir’s status.
Regarding Additional Inheritance Tax or Estate Tax Imposed by Specific States in the U.S.
The liability to pay this tax depends primarily on the relationship between the testator and the heir, for example, whether the heir is the testator’s spouse or child versus a more distant relative. The liability to pay this tax does not depend on the citizenship status of the heir.
As mentioned, in countries where inheritance tax applies, first-degree heirs are generally eligible for a partial or full exemption from paying the tax in most cases.
Does property inherited from Florida need to be taxed in Israel?
No. There is no inheritance tax in Israel. However, capital gains tax may apply after the sale of the property. It is important to check the recommended date for selling the inherited property.
Why is it important to plan for the transfer of assets between generations?
Transferring assets from abroad to an intergenerational level is not only a family matter but is also a tax and financial matter. Early planning, which addresses legal issues in Israel and abroad, can save a significant amount of money and prevent legal complications.
How can you best realize your inheritance and save tax?
To realize the inheritance in the best possible way and save unnecessary tax payments, all tax options must be examined, including utilizing exemptions, gift planning, establishing companies, trust funds, and more.
How can I minimize my U.S. inheritance tax liability?
Through early tax planning, which includes drafting a will, utilizing exemptions, giving gifts during your lifetime, and more, you can significantly reduce your tax liability.
Is it better to give an asset as a gift during your lifetime or to bequeath it?
The choice between giving a gift and an inheritance depends on the circumstances of the case. Sometimes a gift will be taxed similarly to an inheritance. Therefore, the legal and tax aspects should be thoroughly examined before making a decision.
What are the consequences if there is no will?
In the absence of a will, the inheritance will be divided among the legal heirs following American inheritance law.
What documents are required for the probate process in California?
To realize an inheritance in the US, documents such as a death certificate, a will (if one exists), copies of the heirs’ ID cards, property ownership documents, bank account confirmations, and more are required.
How long does the process of realizing an inheritance take in the U.S.?
It should be considered that the process of realizing an inheritance in the U.S. can take between several months and a year or more, depending on the complexity of the testator’s estate, the number of heirs, the existence of a will, and other factors.
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