Estate Planning for International Clients: 3 Traps for the Unwary
International customers residing in the United States deal with a number of Estate Planning difficulties. For the unwary, an absence of planning can result in catastrophe. In this article, attorney John C. Martin goes over 4 traps for the negligent expatriate who passes through, lives, or works in the United Sates.
Estate Planning for International Customers: 3 Traps for the Unwary
International clients living in the United States face a number of Estate Planning challenges. For the negligent, an absence of planning can lead to disaster. In this article, the author talks about 3 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 Don’t Know
Often times, non-US people doubt whether they will undergo different sort of tax, and at what amount. Perhaps a nonresident working on a business visa pays income tax on their worldwide earnings, and reckons that they for that reason are treated the like an US citizen for all other types of tax. Wrong. The guidelines subjecting one to earnings tax differ from those for transfer tax. A person needs to pay income tax if they satisfy among the following tests:
( 1 )She Or He has a permit (is a legal irreversible homeowner);
On the other hand, a person is subject transfer tax based upon a much different test. What is transfer tax? Transfer tax consists of the numerous kinds of taxes that Estate Planning attorneys are worked with to lower or eliminate. They consist of present tax, estate tax, and generation avoiding transfer tax (GSTT). Capital gains tax is not a “transfer tax,” but it often enters play when a transfer of assets is made. Who will be subject to move tax? The internal earnings code, section 2001(a), provides that a “tax is hereby troubled the transfer of the taxable estate of every decedent who is a resident or resident of the United States.” But a “resident” for income tax functions, talked about above, is various from a “resident” for transfer tax purposes. The more vital question for transfer tax functions is whether one is domiciled in the nation. To be domiciled in the United States:
( 1 )The individual must mean to completely reside in the United States;
Does this mean that an individual who maintains a home in the United States might not be domiciled there for transfer tax functions? Yes. If the specific intended to move back to their nation of origin, which truth could be plainly demonstrated by the truths and situations, then the Internal Revenue Service might consider the individual to be domiciled in their native land. As we will see below, this determination is very important for the types 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 locals and residents, the 2009 estate tax exemption is equivalent to $3,500,000. That indicates that estates valued at less than $3,500,000 will not be subject to estate tax for decedents passing away in 2009. Non-residents, nevertheless, can just transfer approximately $60,000 without paying an estate tax. Therefore, numerous non-residents residing in the United States, some only with modest assets, will leave their beneficiaries with a 45% expense on substantial taxable estates!
If a non-resident has an US Person spouse, they can take advantage of the IRC 2523 unrestricted marital reduction, which defers all estate tax until the death of the 2nd partner. Yet, lots of non-residents do not have an US citizen partner. For those with non-citizen spouses, a Certified Domestic Trust (“QDOT”) can be developed to make certified transfers to one’s spouse to minimize or remove the estate tax expense. Together with a Credit Shelter Trust that sets aside the $60,000 exemption quantity, the QDOT can be a powerful planning method. Nonetheless, upon his or her death, the non-Citizen partner will still leave their beneficiaries with a large taxable estate.
Third Trap: Gift Tax on taxable transfers
Non citizens can not make any “taxable transfers” for gift-tax functions without sustaining a gift tax. IRC 2102, 2106(a)( 3 ), 2505. Nevertheless, they should bear in mind that they can take benefit of gift-tax exclusions, such as the IRC 2503(b) yearly exclusion, and the unique IRC 2523(i) for non person spouses.
Also, the type of property will make a difference on whether a taxable transfer goes through gift tax. For non-resident non-domicilaries, just those possessions regarded to be situated within the United States go through gift tax. Presents of intangible properties, on the other hand, will not undergo gift tax. Why is that important? Considering that shares of stock are thought about intangible possessions, they might be moved in particular circumstances without setting off any present tax. Non-residents ought to evaluate which properties will undergo present tax in order to plan accordingly.
Conclusion: Be Prepared
Non-residents need to look for education in order to minimize an unfavorable level of direct exposure to move tax both now and upon their death. Consulting with an estate planning attorney who deals with worldwide customers can assist mitigate these and other concerns.
This post is planned to provide general info about estate planning techniques and ought to not be relied upon as an alternative for legal advice from a certified lawyer. Treasury regulations require a disclaimer that to the level this short article issues tax matters, it is not intended to be utilized and can not be utilized by a taxpayer for the purpose of preventing penalties that might be enforced by law.