Navigating U.S. Estate Taxes for Malaysian & International Investors

Picture this, a 50-year-old British expat, called Simon, working in the energy sector came to us for a routine portfolio review. Over the course of his career, he had accumulated approximately USD 1.2 million in stock from SLB (Schlumberger Limited) through long-term incentive and compensation plans. His shares were held in a U.S.-based brokerage account, the default arrangement through his employer's compensation programme, and he had never given U.S. estate tax a second thought.

During our review, we identified that his family could face a potential tax liability of hundreds of thousands of dollars, simply because of the type of asset he held and where he held them.

It is a situation far more common than most investors realise, and one that proactive planning can address.

Table of Contents

1. Why U.S. Estate Tax Matters for Malaysian Investors

2. Do Non-U.S. Citizens Pay U.S. Estate Taxes?

3. Understanding Non-Resident Alien (NRA) Status

4. The Estate Tax Gap: NRAs vs. U.S. Citizens

5. Strategies to Reduce Estate Tax Risk

6. Additional Planning Approaches

7. What About Tax Treaties?

8. Key Takeaways

Why U.S. Estate Tax Matters for International Investors

The U.S. stock market, particularly its dominant technology and energy sectors, continues to attract international investors seeking diversification, growth, and global exposure.

However, alongside these opportunities comes a critical and often overlooked risk: U.S. estate tax.

For non-U.S. citizens and residents, this tax can significantly reduce the value of assets passed on to loved ones if not properly planned for. It applies regardless of where the investor lives, and regardless of where the brokerage account is held.

Do Non-U.S. Citizens Pay U.S. Estate Taxes?

Yes.

If you are classified as a Non-Resident Alien (NRA) and hold more than USD 60,000 in U.S.-situated assets, your estate may be subject to U.S. estate taxes of up to 40%.

U.S.-situated assets include:

• U.S. real estate

• U.S.-domiciled ETFs and mutual funds

• Shares in U.S.-incorporated companies (e.g., multinational listed firms)

Understanding Non-Resident Alien (NRA) Status

In the U.S. tax system, an NRA is someone who:

• Is not a U.S. citizen

• Does not hold a U.S. green card

• Does not meet the "substantial presence" test

For NRAs, estate tax exposure is determined by the type of asset, not by where the account is held.  

The Estate Tax Gap: NRAs vs. U.S. Citizens

The contrast is significant:

• U.S. citizens and residents: approximately USD 15 million* exemption (2026)

• Non-Resident Aliens: USD 60,000 exemption

*Under the One Big Beautiful Bill Act, enacted in July 2025, the exemption increases to USD 15 million per person from 1 January 2026, with annual inflation indexing going forward. However, people may still wish to consult their advisers, as the increased exemptions under the OBBBA could be reduced or repealed by a future administration. U.S. citizens should seek specialist U.S. tax advice on any potential impact. For NRAs, the USD 60,000 exemption is unaffected.

For investors like Simon, this gap highlights the importance of proactive planning. Assets above the USD 60,000 threshold may be taxed at rates ranging from 18% to 40%.

Strategies to Reduce Estate Tax Risk

After identifying his exposure, Simon could explore several approaches with a qualified cross-border financial adviser: These are planning strategies, not recommendations. The right approach depends on individual circumstances, tax residency, and objectives.

1. Gradual Reduction of U.S. Holdings

Simon could choose to systematically reduce his direct holdings in SLB stock over time. This approach allows flexibility in timing, helping manage market conditions and capital gains implications while reducing overall estate tax exposure. A qualified tax adviser should be consulted before undertaking any restructuring. ‍

2. Reinvestment into Non-U.S. Structures

Proceeds could be reinvested into funds domiciled in Ireland (ISIN beginning IE) or Luxembourg (ISIN beginning LU). These funds typically provide continued exposure to global equity markets without being classified as U.S.-situs assets.  

3. Cross-Border Tax Review

Working with a specialist adviser, Simon could assess the tax implications of any restructuring, alongside any international planning reliefs available to him.

4. Estate Planning Alignment

Updating beneficiary structures and estate planning arrangements can help ensure efficient wealth transfer and reduce the administrative burden on family members at the time of death.

Additional Planning Approaches

Depending on individual circumstances, additional strategies may include:

Insurance-Based Investment Wrappers

By transferring U.S. assets into an appropriately structured insurance wrapper, the legal ownership of those assets shifts to the insurance company, not the individual. Because the insurance company does not die, the individual's estate no longer holds U.S.-situs assets directly, removing the estate tax trigger. This approach is subject to appropriate structuring with qualified legal and tax advice, and specialist guidance is essential to ensure the arrangement is robust under IRS scrutiny.

Life Insurance Planning

Life insurance can provide liquidity to cover potential estate tax liabilities, helping to ensure that beneficiaries receive the intended value of the estate without being forced into rushed asset sales. This does not reduce the tax itself, but it addresses the practical impact on the family.

What About Tax Treaties?

The U.S. has estate tax treaties with a number of countries that can increase exemption thresholds or reduce overall exposure.

However, Malaysia does not currently have a U.S. estate tax treaty in place, making careful and proactive structuring especially important for Malaysian-based investors, and those who are tax resident in Malaysia. For clients with U.S. citizenship or dual residency, the position is different and requires separate specialist advice.

Key Takeaways

• U.S. estate tax is a material and often overlooked risk for non-U.S. investors  

• The USD 60,000 exemption available to NRAs is significantly limited compared to the protections available to U.S. citizens

• Holding U.S. assets through a U.S.-based brokerage account does not eliminate estate tax exposure, it is the domicile of asset that matters

• Strategic structuring including fund domicile selection, insurance wrappers, and estate planning can help protect family wealth

• Malaysia has no estate tax treaty with the U.S., making early planning essential

• Exemption thresholds are subject to legislative change. The position should be reviewed regularly.

At Melbourne Capital Group, we specialise in helping globally mobile professionals and investors structure their portfolios efficiently with long-term objectives in mind. If you hold U.S. assets - or are considering investing in them - we would encourage you to review your exposure and plan accordingly.

Feel free to contact Luke White (lukewhite@melbournecapitalgroup.com), Private Wealth Manager or fill out the form below and we will be in touch with a discovery call as soon as possible.

Important Information

This article is intended for informational and educational purposes only. It does not constitute financial, tax, or legal advice and should not be relied upon as such. The information contained herein is based on sources believed to be accurate as of the date of publication; however, tax laws and regulatory thresholds are subject to change. Figures cited reflect the position as of May 2026.

Readers are strongly advised to seek independent professional advice.