International customers living in the United States face a variety of Estate Planning challenges. For the unwary, an absence of planning can lead to disaster. In this short article, lawyer John C. Martin discusses 4 traps for the unwary expatriate who passes through, lives, or operates in the United Sates.
Estate Planning for International Customers: 3 Traps for the Unwary
International clients residing in the United States deal with a variety of Estate Planning obstacles. For the unwary, a lack of planning can cause catastrophe. In this article, the author discusses three traps for the unwary migrant who passes through, lives, or operates in the United States.
First Trap: It’s Not What you Know, it’s What you Do not Know
Often times, non-US residents doubt whether they will go through various type of tax, and at what quantity. Perhaps a nonresident working on a business visa pays earnings tax on their worldwide incomes, and reckons that they for that reason are dealt with the very same as a United States person for all other kinds of tax. Incorrect. The guidelines subjecting one to income tax vary from those for transfer tax. A person has to pay income tax if they fulfill among the following tests:
( 1 )She Or He has a green card (is a legal long-term resident);
On the other hand, a person is subject transfer tax based upon a much various test. What is transfer tax? Transfer tax consists of the many types of taxes that Estate Planning attorneys are hired to minimize or remove. They include gift tax, estate tax, and generation skipping transfer tax (GSTT). Capital gains tax is not a “transfer tax,” however it often enters play when a transfer of assets is made. Who will undergo move tax? The internal profits code, area 2001(a), provides that a “tax is hereby troubled the transfer of the taxable estate of every decedent who is a citizen or homeowner of the United States.” However a “resident” for earnings tax purposes, gone over above, is different from a “resident” for transfer tax functions. The more crucial concern for transfer tax functions is whether one is domiciled in the nation. To be domiciled in the United States:
( 1 )The person must plan to permanently live in the United States;
Does this mean that a person who maintains a home in the United States might not be domiciled there for transfer tax functions? Yes. If the specific planned to move back to their native land, and that fact could be plainly demonstrated by the facts and circumstances, then the Internal Revenue Service might think about the individual to be domiciled in their native land. As we will see below, this determination is essential for the kinds of tax that can be imposed on transfers and at what amount.
Second Trap: The $60,000 Estate Tax Exemption for non-Residents
For United States long-term residents and people, the 2009 estate tax exemption amounts to $3,500,000. That implies that estates valued at less than $3,500,000 will not go through estate tax for decedents passing away in 2009. Non-residents, however, can only move as much as $60,000 without paying an estate tax. Therefore, many non-residents residing in the United States, some just with modest possessions, will leave their heirs with a 45% costs on large taxable estates!
If a non-resident has a United States Resident partner, they can benefit from the IRC 2523 limitless marital deduction, which postpones all estate tax up until the death of the second partner. Yet, numerous non-residents do not have a United States resident spouse. For those with non-citizen partners, a Certified Domestic Trust (“QDOT”) can be developed to make certified transfers to one’s partner to lower or eliminate the estate tax expense. Together with a Credit Shelter Trust that reserves the $60,000 exemption amount, the QDOT can be an effective planning method. Upon his or her death, the non-Citizen partner will still leave their beneficiaries with a large taxable estate.
Third Trap: Present Tax on taxable transfers
Non residents can not make any “taxable transfers” for gift-tax purposes without incurring a gift tax. IRC 2102, 2106(a)( 3 ), 2505. Nevertheless, they need to keep in mind that they can benefit from gift-tax exclusions, such as the IRC 2503(b) annual exemption, and the unique IRC 2523(i) for non citizen partners.
Also, the type of property will make a distinction on whether a taxable transfer is subject to gift tax. For non-resident non-domicilaries, just those properties concerned to be positioned within the United States are subject to gift tax. Gifts of intangible possessions, on the other hand, will not go through present tax. Why is that important? Because shares of stock are considered intangible assets, they might be moved in particular situations without setting off any gift tax. Non-residents need to review which properties will undergo present tax in order to plan accordingly.
Conclusion: Be Prepared
Non-residents should seek education in order to decrease an undesirable level of exposure to move tax both now and upon their death. Consulting with an estate planning attorney who deals with international customers can assist alleviate these and other issues.
This post is meant to supply general info about estate planning methods and ought to not be trusted as an alternative for legal advice from a certified lawyer. Treasury policies need a disclaimer that to the level this post concerns tax matters, it is not planned to be utilized and can not be utilized by a taxpayer for the purpose of preventing penalties that may be enforced by law.