sykes

This is a discussion of Inheritance Tax/Estate Tax for people who are currently residing in the US but are not citizens and tactics they are using in their personal estate planning to mitigate IHT when they die.

From my understanding non-citizens do not receive the same IHT exemptions as US citizens. I believe non-citizens are only entitled to a 60k IHT exception. While the $5mil exemption for US citizens would be more than I would need, 60K is insufficient.

I am starting to think about doing some estate planning and have yet to seek counsel on the matter but before I spend money for legal advice I was wondering what you guys here employ? Without going into too many details. my main assets compose my home (owned in my sole name) and an investment portfolio (individual stocks, funds and bonds), both located here in the US.




**This is a layperson discussion. Non of the content should be considered legal advice. It may provide ideas to discuss with a financial planner or Estate lawyer.**

md95065

Are you a permanent resident?

It is my understanding that permanent residents are treated the same as citizens when it comes to the Estate Tax exemption.

If, however, you are not a permanent resident (or a citizen) then, yes, you should be concerned about this.

JAJ

From form I706: For estate tax purposes, a resident is someone who had a domicile in the United States at the time of death. A person acquires a domicile by living in a place for even a brief period of time, as long as the person had no intention of moving from that place.

Problem is that in order to be in that situation, you may need at least to be a PR although a few nonimmigrants might qualify, such as K.

Don't forget any applicable state inheritance/estate tax issues. Also, what foreign taxes might or might not apply, either on the estate or beneficiaries.

Another factor to consider is that (at least in the UK and USA) untaxed capital gains are not charged to the estate and effectively escape taxation. This does not apply to pre-death gifts, however.

sykes

Ahh, that would make a lot more sense (non-citizen permanent resident vs non-citizen non-resident). I was having dinner over the weekend with another expat permanent resident and got quite worried when I was told about the 60k exemption.

JAJ,
At thirty five, I am not quite ready to start giving away assets yet, but it definitely is a great idea when the time comes.

Thanks for you help,



JAJ,
I was going to add a note to my OP, but there is no edit feature for the OP. Could you add a note stating the information is incorrect, or maybe delete the thread entirely? I would hate to misinform someone else, as I was this weekend.

ian-mstm

I believe you have only 2 hours in which to edit your previous posts.

Ian

JAJ

You ask about "estate planning" but your first step should be to ask is your future in the USA or not? If no, then the $60k threshold applies, but (again, as far as I understand and you need to verify) - only to assets in the US.
http://www.irs.gov/instructions/i706na/index.html

So if you're only temporarily in the USA, you shouldn't have too many assets located in the United States?

Also, if you are only temporarily in the US then (if you're British) you may still have a UK domicile and hence your worldwide estate falls within the UK Inheritance Tax net, if it exceeds the nil rate band. Any US estate tax might offset part of this - again, you need to check.

If you become a GC holder and intend to remain in the US then the normal federal tax rates apply, also getting a GC (and more importantly, US citizenship) helps to indicate losing your UK domicile if you have one.

celticgrid

The OP asks about what happens when a non-citizen dies. The big issue for estate planning is when the citizen dies - the tax rules relating to a non-citizen surviving spouse are different. That is, a surviving USC spouse gets better tax treatment than a surviving non-USC spouse. In this area the issue of being a PR is irrelevant, the differences are between being a USC and a non-USC.

If the OP really is concerned about what happens when a non-USC dies and their surviving spouse is a USC, the answer is....nothing special. If the estate is subject to US tax then the fact that the deceased was a non-USC is irrelevant. However, in a situation where the surviving spouse is the non-USC....

I believe the issue gets more complicated when you look at the State level.

There are ways to mitigate all this but it needs proper planning with professional advice from an estate planner that is familiar with the non-USC issues.

All the associated grief is one reason I'm heading for citizenship at the earliest opportunity!

JAJ

I'm open to correction - but as far as I am aware, this only is an issue if the estate is worth over the federal estate tax threshold for residents, which is $3.5m. Most people's estate isn't anywhere near that amount.

celticgrid

The big problem in this area is that whatever the situation is when you draw up the will does not apply - it is the situation when death comes a-calling. So unless you plan on keeping your will updated as the laws change, a cautious approach is probably best.

You may be right. You may not. Is it $3.5m or is it now $5.0m? And for a period in 2010 was estate tax not technically in force at all? My point is that there are differences. Today those differences may not affect most of us, but that doesn't mean that tomorrow, as the government looks to grab every cent it can, that the numbers won't change.

That's the federal stuff.

As I mentioned, in many states there's estate tax to worry about and the thresholds are, in general, not as generous as the (current) federal levels.

I'm not sure what today's numbers are and I don't need to know. Our wills are written to avoid the penalties for me being a non-citizen whatever the numbers, whenever. My advice to the OP was, and remains, seek professional advice from an estate planner familiar with the wrinkles involved with non-citizenship.

JAJ

I can't imagine how anyone could "not want to know todays's numbers ... "

Anyway, you made a comment that appears to be plain wrong: "In this area the issue of being a PR is irrelevant, the differences are between being a USC and a non-USC.".

When in fact, being a PR is very relevant, as having a US domicile (most PRs living in the USA should meet this criterion, although it's not quite the same as being a resident alien) means you get taxed at the resident rates.

A lot of people get worked up about the spouse deduction not being available, but it's irrelevant to the 98%+ of people who have estates less than a few million dollars.

Or if you think all this is wrong, then a reference would be interesting.

Macca67

My estate planning tactics are very straightforward. I plan on spending every last coin before I shuffle off leaving only enough for a cheap burial in a pauper's outfit.

celticgrid

The way our wills are written takes out of the equation totally any differences between citizen and non-citizen status. Of course, in theory if everything changes in favor of non-citizens then I may lose out, but that's an assumption I'm making so I can get on with life without this issue being a concern.

Let me be clear. I was answering in the context of the OP's original question. Yes, I am aware that there's a massive difference between resident/non-resident status in tax planning, but the question was about the issues arising from one spouse being a non-citizen.

I refer you back to what I've said twice so far...it is not only federal tax but state tax that must be considered, and "a few million dollars" is way above the threshold for many states. In NY, for instance, the threshold is $1m. That may be lowest level of all affected states, it may not. Add up insurance policies and house valuations etc. and I suspect that more than 2% are affected.

JAJ

Interesting. How did you manage to achieve that?



And it's been established that if the non-citizen spouse is a PR and domiciled in the US, then as long your estate is less than the current federal threshold ($3.5m in 2011) there is no difference whether the spouse is a US citizen or not.

If you think there are other issues (if a spouse is a LPR rather than USC) at federal level, please share them. We really would be interested to know.


State tax is completely different. Some states may make a distinction between a US and non-US citizen spouse, but others may not. If you want to discuss state issues, you usually have to mention the state involved.