Blocker Structures for US Securities and US Real Estate Held by Nonresident Non-Citizens
The guide explains when a nonresident non-citizen’s US shares and US real property call for a holding structure, when an estate tax treaty has already removed the exposure, and what each structure costs in income tax.
By Caroline Esche Ashford, PhD, JD · Updated in September 2026
In brief.
- A nonresident non-citizen who owns US real estate or US corporate stock directly faces US estate tax at rates up to 40 percent, with a credit that shelters only USD 60,000 (I.R.C. §§ 2101, 2102(b)). Shares of a foreign corporation are foreign-situs property, regardless of its holdings.
- The treaty is the first test. For a non-citizen domiciled in Germany, France, the United Kingdom, the Netherlands, Austria or Denmark, directly held US shares are outside US estate tax, and a holding company for securities saves no estate tax.
- Where no treaty helps, a holding company organized in the client’s own treaty country is the usual answer for a portfolio; one formed where no income tax treaty applies pays the full 30 percent on US dividends.
- US real property stays within US taxation under every structure. Corporate structures replace the estate tax with corporate income tax and a second-level tax, and they forfeit the basis step-up at death.
- A blocker must be respected as owner, tested against the rules of the client’s country of residence and prepared for heirs who are US persons.
The issue
A citizen who dies in 2026 can shelter USD 15,000,000 under the basic exclusion amount; a nonresident non-citizen holding US shares or US real estate directly is limited to a credit that shelters USD 60,000. The customary response is a foreign corporation placed between the owner and the US asset. The guide starts from the observation that such structures are often built for clients who do not need them, and that their income tax cost, their exit and their treatment in the home country are frequently left out of the calculation.
Who the guide is for
The guide addresses tax advisors, attorneys, family offices and fiduciaries advising non-US clients with US securities or US real property, whether a structure is being designed or reviewed, and advisors of families whose next generation includes US citizens or residents.
The treaty decides whether a blocker is needed
The estate tax treaties follow two patterns. Under the domicile-type treaties, the United States may tax a non-citizen domiciliary only on US real estate and the assets of a US permanent establishment, and the treaties with Germany and France add a credit prorated from the citizen’s credit. Under the situs-type treaties with Switzerland, Italy, Japan, Greece, Finland and Australia, US shares stay within US tax, with a prorated exemption. Clients from Belgium, Spain, Luxembourg, Portugal and other countries without a treaty face the Code alone, where a blocker has the most value.
Securities portfolios and the foreign holding company
Without treaty protection, a US equity portfolio is where a foreign holding company works best, since the income tax position hardly changes. The dividend rate is set by the corporation’s own treaty status, not the shareholder’s, so the company’s residence and its standing under the limitation-on-benefits article decide the rate. The composition of the portfolio matters too: US-registered funds count as US shares, while funds domiciled abroad, portfolio debt and bank deposits fall outside the estate without any structure.
US real estate: comparing the holding structures
Since US real property remains taxable under the Code and every treaty, the question is how it is held. The guide compares direct ownership with a single foreign corporation, subject to corporate tax and the branch profits tax, and with a two-tier structure in which a US corporation pays dividends to a foreign parent. It accounts for the cost of the exit, not only the years of ownership, and it explains why loans from the client to a US entity create a US-situs asset.
Alternatives, substance and the home country
The guide reviews the irrevocable trust funded from abroad, the partnership or limited liability company, mortgage financing and life insurance. It sets out what allows a structure to withstand examination, drawing on decisions in which an entity was disregarded as a custodian or treated as revocable, and the US filings required. It then shows how the client’s country of residence reaches the structure through attribution rules, the company’s place of management, deemed dividends from rent-free use and its own inheritance tax.
Heirs who are US persons
In the hands of heirs who are US citizens or residents, a foreign blocker becomes a passive foreign investment company and possibly a controlled foreign corporation. The heirs take the shares at fair market value, but the property inside keeps its historic basis. The guide explains how an election changing the entity’s classification as of the day after death, or a liquidation, is prepared in advance, and what it costs for real property (I.R.C. § 897(d)).
The questions the guide answers
- Does the client’s treaty already exempt directly held US shares, and does it prorate the credit against US real property?
- When does a foreign holding company justify its cost for a portfolio, and where should it be organized?
- How do direct ownership, a single foreign corporation and a two-tier structure compare for US real property, through sale and liquidation?
- Which facts cause a blocker to be disregarded, and which US filings keep it in good standing?
- How does the client’s country of residence treat the company and a residence it owns?
- How is the exit prepared for heirs who are US persons?
- Part I. The situs rules and the blocker principle
- Part II. The estate tax conventions as the first question
- Part III. Marketable securities
- Part IV. United States real estate
- Part V. The alternatives: trusts, partnerships, leverage and insurance
- Part VI. Substance, personal use and reporting
- Part VII. The home-country side
- Part VIII. US-person heirs and the exit
- Part IX. Practice points
The firm reviews the client’s treaty position first and then models the available structures on the client’s own figures, including the exit and the heirs. It forms and maintains holding companies, handles their US filings and plans their conversion for heirs who are US persons. Where the client lives in Germany, the firm’s German-qualified lawyers address both sides; for other countries it works with the client’s own advisors there or with advisors from its network.
Figures as of October 2026.
This page is general information as of the date stated and is not legal or tax advice. The application of the rules and conventions described depends on the facts of each case.
