US Stocks Look Attractive but One Hidden Tax Can Reduce Your Family’s Inheritance

Global investing has become a natural part of wealth building for many professionals. Exposure to US companies, dollar-based returns and diversified global portfolios is appealing and often beneficial. But while the focus is usually on growth and long-term performance, one specific US regulation is often overlooked. This regulation can significantly impact the wealth your family receives if something unexpected happens.

This is the US estate tax, and its effect on non-US investors is far more restrictive than most people realise.

The Hidden Rule Most Investors Miss

If someone who is not a US citizen or US resident passes away while holding US assets, the estate may be taxed before it is transferred to the heirs. The exemption limit for foreign investors is only 60,000 dollars. Any value above this amount can be taxed at progressive rates that reach up to 40%.

This applies to assets such as:

• US listed stocks

• US brokerage accounts

• ESOPs or RSUs of US companies

• ETFs domiciled in the US

• Cash held inside US trading platforms

Since India does not have an estate tax treaty with the US, there is no additional protection available. The tax is applied without adjustment or relief.

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A Simple Example to Understand the Impact

Consider an investor holding 200,000 dollars in US shares.

Exemption available: 60,000 dollars

Taxable amount: 140,000 dollars

If taxed at 40%, the estate pays 56,000 dollars

The family receives only 144,000 dollars instead of the full 200,000 dollars

This is not a small deduction. It can change the outcome of years of disciplined investing.

Why ESOP Holders Should Pay Special Attention

A growing number of Indian and NRI professionals receive ESOPs from US based companies. Over time, these ESOPs vest and accumulate in US brokerage accounts. Even if the investor lives abroad or in India, the tax rules apply because the assets are held in the United States.

As the value of ESOPs increases, it becomes easier to cross the 60,000 dollar threshold without noticing. This creates an unplanned risk that can affect the family’s financial security.

Safer Ways to Invest in US Markets

The solution is not to avoid US markets. The solution is to avoid direct ownership of US assets that fall under estate tax. Investors can keep global exposure while eliminating the risk through better structures.

Here are practical alternatives:

India Based Fund of Funds

These funds invest in international indices or portfolios while keeping ownership non-US. They offer simplicity, compliance and estate tax safety.

Life Insurance for Liquidity

If restructuring is not preferred, a life insurance plan can provide the funds required to cover potential estate taxes, ensuring the family is not burdened.

IFSC Based Funds

Funds Registered in India's international financial services centres (GIFT city) pool money and invest globally. Investors own units of an Indian structure, not US shares directly.

What Investors Should Do Now

A simple review can protect a significant portion of global wealth.

Steps to consider:

• Check if you hold US assets directly

• Include ESOPs, vested RSUs and US domiciled ETFs

• Check whether the total value crosses or may soon cross 60,000 dollars

• If it does, consult your advisor on shifting to safer structures

• Ensure your global investments align with long term estate planning

This allows you to keep the benefits of international diversification while removing unnecessary tax exposure.