The purpose
of estate planning is to arrange a person's personal and business assets so that, at
death, the maximum beneficial use can be made of his or her material wealth.
Developing an estate plan involves more than an understanding of tax laws.
PLANNING FOR NONCITIZENS
There are special problems in estate planning when one or both of the spouses are not U.S.
Citizens. Without proper planning, federal estate tax may be due on the decedent's estate
at the first death where the survivor is a noncitizen. Payment of estate taxes at the
first death may be postponed through the use of a Qualified Domestic Trust.
"Resident Alien" status:
Generally, "Resident Alien" describes someone whose domicile is in the United
States but who is not a U.S. citizen.
- Resident Aliens are generally taxed under the same rules and at the same rates as U. S.
citizens; i.e., on world-wide assets and transfers, except for special rules relating to
the estate tax Marital Deductions and Joint Property.
- Acquiring the status of a Resident Alien will automatically subject to United States
estate or gift tax all assets of the individual wherever located, including any property
previously acquired by the individual such as annuities and life insurance.
Federal Estate Tax:
Unified Credit is allowed for Resident Aliens; that is, there is an estate tax
"exemption" for assets under $650,000 in 1999, and
$675,000(2000-2001),$700(2002-2003),$850,000(2004),
$950,000(2005), $1,000,000.00(2006).
- The major "trap" that exists for Resident Aliens is in qualifying for the
Marital Deduction.
If the surviving spouse is not a U.S. citizen before the estate tax return is due; or
where the property is transferred to a Qualified Domestic Trust.
- Joint-owned property is treated differently for aliens than for U.S. citizens:
.where the surviving spouse is an alien, the entire value of the property is presumed to
be included in the decedent's gross estate for estate tax purposes;
. there is an exclusion only for the portion that the survivor can demonstrate their
actual contribution to the purchase price or acquisition.
Gift Tax:
Gift tax rules for Resident Aliens are generally the same as for citizens, including the
same Unified Credit amount and ability to split gifts with spouse.
. The $10,000 annual exclusion is available
. No gift tax Marital Deduction is available. This is the case even if the gift is to a
Trust that meets the requirements of a QDOT
. The annual exclusion for gifties to a Resident Alien spouse is $100,000, if the transfer
would otherwise qualify for the Marital Deduction to a U.S. citizen.
. Gifties made by a Resident Alien of property located abroad which are made abroad remain
subject to gift tax.
TRANSFER TAXATION OF NONRESIDENT ALIENS
"Nonresident Alien" status:
Generally "nonresident Alien" describes someone who is neither a United States
citizen nor a person whose domicile is in the United States.
A Nonresident Alien is generally taxed only on property which has a situs within the
United States, a key difference from taxation for Resident Aliens.
Federal Estate Tax:
The "exemption" amount allowed for estates of Nonresident Aliens is small.
Only the first
$60,000.00 in value of taxable estate is free of transfer tax, unless provided otherwise
by treaty.
. No marital deduction is allowed except under the same limitations as apply to Resident
Alien spouses described above.
. The special rules relating to joint property owned by spouses also apply here.
Gift Tax:
. Same situs rules applicable.
. Gift taxes are applicable for lifetime transfers with the familiar $10,000 annual
exclusion.
. There is no gift tax Marital Deduction
. Nonresident Aliens, however, can use no part of the Unified Credit. there is no
privilege of gift splitting with a spouse. Also, gifts to an alien spouse may enjoy a
$100,000 annual exclusion.
If you need a Certified Public Accountant that provides tax advice to
foreign persons for minimizing U.S. income and inheritance taxes and
structuring offshore solutions to accomplish these ojectives in
appropriate circumstances please contatct me.
DISCLAIMER
The information provided here is of a general nature and may not apply to any particular
set of facts or circumstances, and should not be relied on to replace the necessity of
actual legal advice.
