U.S. Taxpayer with Indian Assets: Estate Tax and FBAR Rules

When a U.S. citizen or green‑card holder with money, property, or business interests in India dies, their heirs face immediate cross‑border questions because U.S. estate tax covers worldwide assets. That means Indian bank accounts, brokerage holdings, family apartments in Mumbai or Bengaluru, and even shares in Indian companies all fall into the decedent’s U.S. gross estate. Families in both countries often discover this only after a parent or spouse passes away, and the resulting filings, valuation steps, and probate actions can stretch for months.

Lawyers and accountants say the very first decision point is whether the deceased was a U.S. citizen or a U.S. resident for tax purposes at the time of death; if so, the estate usually needs to account for overseas holdings and consider the U.S. filing on the federal estate return, known as Form 706. Even where no tax is due because the estate is below the exclusion amount, the paperwork does not simply go away.

Initial steps for an executor or personal representative

• Start by listing everything the decedent owned, domestic and foreign.
• If India appears on that list, expect to work across two legal systems (U.S. and Indian).
• Identify the decedent’s U.S. status at death: U.S. citizen or U.S. resident (worldwide assets included) versus non‑U.S. citizen/non‑resident (only U.S. situs assets generally included).

Key practical actions:
1. Gather asset lists, bank statements, property titles, and share certificates from India.
2. Obtain U.S. documents: death certificate, probate letters, and any prior tax filings.
3. Retain professionals on both sides of the ocean (Indian valuers, lawyers, U.S. estate counsel/accountants) as needed.

Important: Many families assume a foreign home “doesn’t count” for U.S. estate purposes. That assumption is wrong if the owner was a U.S. person at death.

U.S. filings and reporting that matter

• Federal estate return — Form 706 (United States Estate (and Generation‑Skipping) Tax Return): used for U.S. citizens and residents and requires valuation of all included property at the date of death.
  • Even if no tax is due (estate below exclusion), a filing requirement may still apply depending on gross estate size and adjusted taxable gifts.
  • Listing Indian assets on Form 706 requires appraisals, bank statements, and share valuations from Indian sources, converted to U.S. dollars.
• Lifetime foreign reporting that affects estate administration:
  • FBAR (FinCEN Form 114): fileable to Treasury when foreign account balances exceeded USD 10,000 at any time in the year.
  • Form 8938 (Statement of Specified Foreign Financial Assets): filed with the income tax return when specified asset thresholds are met.
  • Directly owned foreign real estate generally is not listed on Form 8938, but still belongs in the U.S. estate tax base for U.S. persons.

If the decedent missed FBAR or Form 8938 filings during life, the estate inherits those compliance gaps, potentially slowing settlement or triggering additional inquiries.

For general U.S. guidance: the IRS maintains an overview page on the federal Estate Tax.

Indian legal process and taxes

Although India does not impose a nationwide federal estate tax like the U.S., local procedures apply:

• Probate and succession requirements vary by state and by the nature of the will.
• Transfers can trigger stamp duty or other charges depending on the state and asset type.
• Ongoing income (e.g., rental income) or capital gains issues for property may continue during administration.
• Indian banks and registrars often require certified U.S. documents (probate order, apostilled death certificate) to release funds or change title.

Practical Indian tasks for heirs or representatives:
– Work with local counsel to update title and register transfers.
– Obtain bank certifications and company filings for shares.
– Secure valuations and tax clearances if selling property.

Warning: A U.S. executor who ignores Indian assets risks filing an incomplete U.S. estate return and potential penalties.

Who is most affected

• Recent students, H‑1B professionals, new green‑card holders who kept Indian accounts or property.
• Digital nomads and remote workers with holdings spread across countries.
• Non‑Resident Indians who later became U.S. citizens or permanent residents.

Common scenario: a student on F‑1 moves to H‑1B and later obtains a green card, all while keeping Indian accounts or an apartment. If they die as a U.S. person, the U.S. estate includes those Indian holdings and Indian authorities control title transfers locally.

Heirs’ reporting obligations

• There is no federal U.S. “inheritance tax” on the heir, but heirs may need to file Form 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts) if they receive large foreign inheritances or gifts.
  • Form 3520 does not make the inheritance taxable income, but failure to file can trigger steep penalties.
• Receiving Indian shares or accounts can create ongoing foreign‑asset reporting duties for heirs (FBAR, Form 8938) if they are U.S. persons.

Common pitfalls and mistakes

• Assuming Indian assets are “safe” from U.S. estate rules if the decedent was a U.S. person.
• Failing to value foreign assets as of the date of death (the necessary benchmark for U.S. estate purposes).
• Ignoring lifetime foreign reporting (FBAR / Form 8938) — those duties don’t vanish because the owner died.
• Misreading the lack of federal tax due as an absence of filing obligations.
• Overlooking immigration status: a green‑card holder remains a U.S. tax resident unless status was properly surrendered.

Coordination and practical workflow

Typical cross‑border approach:
– India side: a relative or local counsel gathers property documents, bank certifications, and share registries.
– U.S. side: the estate’s administrator obtains death certificates, probate letters, and Indian valuations for Form 706.
– Decide whether to sell Indian property or retain it. Selling simplifies distribution but raises Indian capital gains and other consequences.
– Agree early on valuation methods, who will hold title, and how transfers will be documented so both U.S. and Indian records align.

Numbered checklist for executors:
1. Confirm decedent’s U.S. tax status at death (citizen, resident, non‑resident).
2. Inventory all assets worldwide, including dormant accounts in India.
3. Collect Indian documents (titles, bank statements, share certificates) and U.S. documents (death certificate, probate letters).
4. Retain required professionals in India and the U.S. for valuations and filings.
5. File required U.S. estate and informational returns (Form 706, FBAR history if necessary, and assist heirs with Form 3520 if applicable).
6. Complete Indian succession steps and update titles or sell per estate plan.

Emotional and practical realities

The administrative burden happens during grief. The technical language of forms and schedules can feel cold and overwhelming, but clear steps bring relief. Once heirs recognize that worldwide assets are counted for U.S. estate purposes if the owner was a U.S. person at death, they can approach each asset methodically and avoid costly missteps.

• Where the estate is below the exclusion amount, the work often ends with a clean paper trail and no federal estate tax due.
• Larger estates require more detailed calculations and may involve elections and additional schedules.

Planning recommendations

• Plan ahead: keep lists of foreign accounts, close dormant accounts, and update names on property records.
• Track gifts and lifetime transfers and keep records of foreign filings (FBAR, Form 8938).
• Decide whether to keep or relinquish U.S. permanent residence and understand the estate implications of that choice.
• Coordinate estate planning conversations with immigration, employment, and long‑term residence plans.

Official resources

For forms and official instructions:
– IRS federal estate framework: Estate Tax
– Estate return — Form 706
– Specified foreign financial assets — Form 8938
– Inheritances/gifts from abroad — Form 3520
– FBAR filings and FinCEN guidance: available via FinCEN (Treasury)

Heirs and executors who rely on these official materials and seek professional advice when facts are complex tend to move through the process with fewer surprises and clearer expectations in both the United States and India.