As global wealth becomes increasingly mobile, more South African families are finding themselves with ties to the United States—whether through dual citizenship, children living abroad, property investments, or dollar-based trusts. However, the United States has a notoriously complex and far-reaching system of estate and gift taxation that can catch even the most financially savvy families off guard. For high-net-worth South Africans, understanding the nuances of US inheritance and gift taxes is essential to preserving intergenerational wealth.

1. Citizenship and Residency Matter

The first and most important consideration is whether you, your spouse, your children, or your beneficiaries are considered US persons. This category includes US citizens, green card holders, and tax residents.

US citizens and residents are taxed on their worldwide assets for estate and gift tax purposes. This means that even if a US-based child inherits assets located in South Africa, those assets could still be subject to US estate taxes if the value exceeds certain thresholds.
On the other hand, non-resident aliens (NRAs)—which includes most South Africans living in South Africa—are only subject to US estate taxes on US situs assets. These include real estate located in the US, shares in US companies (even if held via a brokerage), tangible personal property in the US, and some types of US-based trusts and partnerships.

2. US Estate Tax for Non-Residents: A Low Exemption Trap

One of the biggest traps for high-net-worth South Africans is the incredibly low US estate tax exemption available to non-residents. While US citizens and residents currently enjoy a historically high federal estate tax exemption of $13.61 million (per person in 2024), non-residents are allowed only $60,000 in exemption. Anything above that is subject to estate tax at rates up to 40%.
This can lead to unpleasant surprises. For example, suppose you own a $1 million Manhattan apartment or hold $500,000 worth of shares in Apple and Google directly. In that case, your estate may owe hundreds of thousands of dollars in U.S. estate tax, even if you are not a U.S. resident or citizen.

3. Gifting Rules and Form 3520

US gift tax rules also come into play in family wealth planning. Non-residents are generally not subject to the US gift tax, unless they give gifts of U.S.-situs assets. For example, gifting U.S. real estate or U.S. corporate stock can trigger U.S. gift taxes.
However, suppose your children or beneficiaries are US persons. In that case, they may be required to report gifts or inheritances from non-US persons if the amount exceeds certain thresholds, typically $100,000 per year for gifts from foreign individuals or estates. This is reported on IRS Form 3520, and failure to file can result in penalties of up to 25% of the gift amount.

4. US Trusts and Foreign Grantors

Many wealthy South African families use trusts as part of their succession planning. But trusts with any connection to the US must be carefully structured. Suppose a South African grantor (settlor) creates a foreign trust and names a US beneficiary. In that case, the trust may be subject to complex US tax reporting, including the notorious throwback rules, which penalise undistributed income with punitive interest charges.

US beneficiaries must also report their interest in foreign trusts annually (using Form 3520-A and Form 3520), even if they receive no distributions. Again, penalties for non-compliance are severe and automatic.

5. Treaty Relief and Planning Opportunities

Thankfully, there is a US–South Africa Estate Tax Treaty that provides some relief. It allows for certain tax credits and ensures that neither country taxes the same estate twice. The treaty can also help non-residents claim a proportional share of the higher US estate tax exemption, depending on their worldwide and US-based assets. However, this is a complex calculation and must be claimed via an estate tax return filed with the IRS.

There are also planning strategies available, such as:

• Owning US stocks through non-US corporations, which can remove them from US situs rules.
• Using life insurance to fund potential estate tax liabilities.
• Setting up irrevocable foreign trusts with proper structuring to avoid US reporting or tax exposure.

6. Work With Cross-Border Specialists
Inheritance and gift tax rules in the US are notoriously complicated and change frequently. South Africans with US connections—primarily through children, trusts, or direct investments—should work with cross-border legal and tax specialists to navigate these waters.
Even minor oversights, such as failing to file Form 3520 or misunderstanding situs rules, can result in significant tax and legal consequences. With proper planning, however, families can safeguard their legacy and avoid unnecessary tax burdens.

The Bottom Line

In an interconnected world, high-net-worth South Africans must think globally, and that includes understanding US inheritance and gift tax implications. Whether it’s property, investments, or children abroad, the key is early planning, careful structuring, and specialised advice. Doing so will ensure your wealth passes smoothly to the next generation, without an unexpected bill from the IRS.