Navigating IRS Transfer Certificates: A Guide for US Citizens Living in Israel

By I. David Waxman, EA

When a US citizen residing in Israel passes away with assets held in the United States, their beneficiaries may face an unexpected administrative hurdle: obtaining an IRS Transfer Certificate (Form 5173). This seemingly obscure document can become a critical requirement for accessing inherited assets, potentially causing delays and additional costs during an already difficult time.

The Scenario: Cross-Border Estate Administration

Consider this common situation: An Israeli resident who maintains US citizenship dies in Israel, leaving behind various American assets. These assets might include:

Investment and Retirement Accounts:

• Taxable brokerage accounts
• Traditional or Roth IRAs
• 401(k) accounts

Other US Assets:

• Real estate properties
• Bank accounts
• Life insurance policies (if payable to the estate of a US citizen).

While the decedent’s estate may seem straightforward to settle, US financial institutions sometimes require proof that all federal tax obligations have been satisfied before releasing assets to beneficiaries.

Understanding the Estate Tax Exemption Threshold

The good news for most families is that the vast majority of estates won’t owe federal estate taxes due to generous exemption thresholds:

• 2025: $13.99 million per individual
• 2026: Expected to increase to $15 million under the One Big Beautiful Act (OBBA)

Portability Provisions: Married couples can effectively double their exemption through the Deceased Spousal Unused Exclusion (DSUE), allowing the surviving spouse to use any unused portion of the deceased spouse’s exemption.

US Citizens vs. Non-US Citizens: A Critical Distinction

The requirements and processes differ significantly based on citizenship status:

US Citizens: Regardless of residence, US citizens are subject to the same estate tax rules as domestic residents. They benefit from the full exemption threshold and can utilize all available estate planning strategies.

Non-US Citizens: Face more restrictive rules, including a much lower exemption threshold (currently $60,000 for 2025) and limited access to certain tax benefits, making estate planning more complex.

The Transfer Certificate Challenge

Here’s where many families encounter unexpected complications. Even when an estate is well below the taxable threshold, US financial institutions may still require Form 5173 (Transfer Certificate) before releasing assets. This certificate serves as the IRS’s confirmation that:

• All required estate tax returns have been filed
• Any estate taxes owed have been paid or adequately secured
• The transfer of assets to beneficiaries can proceed without IRS objection

The Reality Check: Banks and brokerage firms often require this certificate as a protective measure, even for estates that clearly fall below taxable thresholds. Without it, assets may remain frozen indefinitely.

The Process: What to Expect

Obtaining a Transfer Certificate typically involves several steps and can be surprisingly complex:

Professional Engagement: Most families need to engage a qualified attorney or tax professional experienced in cross-border estate administration. This specialized expertise comes at a cost, often ranging from several thousand to tens of thousands of dollars, depending on the estate’s complexity.

Documentation Requirements: The process typically requires extensive documentation, including:

• Complete asset inventory and valuations
• Death certificates (often requiring apostille for international recognition)
• Probate or succession documents from Israeli courts
• Tax identification numbers and filing histories
• Beneficiary identification and documentation

Timeline Considerations: The process can take several months to over a year, particularly when dealing with international elements and coordination between Israeli and US authorities.

Form Filing: Even estates below the taxable threshold may need to obtain the transfer certificate in order to allow the brokerage or bank account to release the funds. Sometimes this requires form 706 (United States Estate Tax Return) to obtain the Transfer Certificate For estates below the threshold, filing a notarized affidavit could be sufficient. In either case, , this adds another layer of complexity and cost.

Nonresidents that are not US citizens have the lower threshold of $60,000. US assets in excess of this lower threshold would trigger the requirement to file form 706A rather than 706. This is a common scenario for Israeli investors in US real estate.

Planning Ahead: Preventive Measures

While the Transfer Certificate process cannot always be avoided entirely, proper estate planning can minimize complications:

Consider Asset Relocation: One of the most effective strategies is to liquidate US-based assets during your lifetime and transfer the proceeds to Israel or your current country of residence. This eliminates the need for Transfer Certificates entirely and simplifies the estate administration process for your beneficiaries. While this approach requires careful tax planning to manage potential capital gains implications, it can save significant time, complexity, and professional fees later.

Documentation: Maintain organized records of all US assets, including account numbers, beneficiary designations, and contact information for financial institutions.

Professional Relationships: Establish relationships with qualified cross-border tax professionals before they’re needed.

Life Insurance for Non-Citizens: For non-US citizens who own US real estate and face the lower $60,000 exemption threshold, consider purchasing term life insurance to provide liquidity for potential estate taxes. This strategy can help beneficiaries pay inheritance taxes without being forced to sell property in a potentially unfavorable market.

Beneficiary Designations: Properly structured beneficiary designations on retirement accounts and life insurance can sometimes bypass probate requirements, though Transfer Certificates may still be required.

Communication: Ensure family members understand the potential requirements and have access to necessary documentation.

The Bottom Line

For US citizens living in Israel, the IRS Transfer Certificate represents an often-overlooked aspect of estate planning that can create significant administrative burdens for grieving families. While most estates won’t owe federal taxes due to generous exemption thresholds, the certificate requirement persists as a procedural necessity.

The key to minimizing complications lies in advance planning and professional guidance. By understanding these requirements and preparing accordingly, families can ensure a smoother transition of assets during an already challenging time.

Important Note: This article provides general information and should not be considered specific legal or tax advice. Cross-border estate planning involves complex regulations that change frequently. Always consult with qualified professionals experienced in both US and Israeli tax and estate law for guidance specific to your situation. For personal guidance, schedule a consultation with your tax expert at Cole & Waxman Tax Services.