For non-US persons with internationally diversified portfolios, United States estate tax exposure is an issue that warrants careful attention, particularly where a portfolio includes US-situs property, most commonly, listed securities traded on US exchanges and interests in US real estate, since even relatively modest holdings can trigger a significant and often unanticipated tax liability.

Under US federal tax law, individuals who are neither US citizens nor domiciled in the United States (commonly referred to as non-resident aliens, or “NRAs”) are subject to US estate tax on the value of their US-situs assets at death.

Critically, the exemption available to NRAs is far more limited than that afforded to US persons: at present, it shelters only approximately $60,000 of US-situs assets from tax, compared with the exemption of over $13 million available to US citizens and domiciliaries. For Bermuda-based individuals and families with even a modest allocation to US equities or real property, this disparity can give rise to material and unintended exposure within a globally managed portfolio.

In this cross-border planning context, how assets are owned and structured is often as important as the nature of the assets themselves. A range of holding structures, including non-US corporate entities, trusts, and other vehicles, may be considered as a means of addressing succession and tax issues arising from the ownership of US-situs property. However, the suitability and effectiveness of any such structure will depend on the specific circumstances, and no single approach should be treated as a standardised solution.

In practice, exposure may arise not only from direct holdings of US securities, but also from the way in which investment accounts are structured and administered. This is a particular concern where assets are managed across multiple jurisdictions, especially where investment decisions are executed through custodial or advisory platforms that may result in the acquisition of US-situs assets without the investor’s full appreciation of the estate tax consequences.

While non-US entities are sometimes used in connection with internationally held investment portfolios in order to mitigate estate tax exposure, their effectiveness in any given case is not to be assumed. The analysis turns on a number of factors, including the legal characterisation of the underlying assets for US tax purposes, the tax treatment of the entity in its jurisdiction of formation and in any other relevant jurisdictions, and how the entity is established, capitalised, and administered on an ongoing basis.

It is equally important to recognise that structures designed to address one risk may introduce additional considerations elsewhere. These can include ongoing regulatory and tax compliance obligations, potential adverse tax consequences in other jurisdictions, and the need to ensure that the chosen structure remains consistent with the individual’s broader estate and succession planning arrangements.

A structure that is effective for US estate tax purposes but creates friction under, for example, the tax or reporting rules of the individual’s jurisdiction of residence, may ultimately prove counterproductive.

Estate planning involving cross-border assets is best approached as an integrated exercise rather than a series of discrete, jurisdiction-specific interventions. Proper analysis requires consideration not only of the relevant succession law regimes, but also of the interaction between different tax systems and the practical realities of how assets are held, managed, and transferred across borders.

For Bermuda-based individuals and families with international investments, the key priority should be the early identification of potential US estate tax exposure and the careful coordination of any planning undertaken in response.

Structures and arrangements should be evaluated not in isolation, but as components of a broader strategy, one designed to ensure that the totality of the individual’s arrangements operates coherently and as intended over time. In this area, timely and well-coordinated advice is not merely beneficial; it is essential.

• Anne Campbell is counsel at Conyers and Craig MacIntyre is director at Conyers. They specialise in wills, estates and trust law, including cross-border estate planning. A copy of this column can be obtained from the Conyers website at www.conyers.com. This column is not intended to be a substitute for professional legal advice. Before acting on any matters discussed, readers should consult a qualified legal adviser.