Will/ guardianship/ trust for US-based kids with UK relatives
#31
BE Forum Addict
Thread Starter
Joined: Apr 2011
Location: Ohio
Posts: 1,834
Re: Will/ guardianship/ trust for US-based kids with UK relatives
Thanks for the feedback, the bit about wills/ trusts is useful.
I'm not quite sure about this, though:
I hesitate to correct a real lawyer with simply browsing about on the internet, but it just doesn't match anything else I've read about estate tax and exemptions.
For starters, estate tax doesn't categorise as citizen or non-citizen, it's more 'US citizen', 'non-citizen but domiciliary', and 'non-citizen and non-domiciliary'. It's domicile at death that's important for estate tax, not citizenship per se; your domicile status can also be quite different to, say, your status for income tax or visa residency.
So, of those 3 categories:
US citizen is quite straightforward (although I expect there's a way to 'lose' your domicile for estate tax somehow if you have lots of highly-paid, clever lawyers).
The next category is for people who aren't citizens, but are able to demonstrate that the centre of their ongoing life is the US: typically GC holders, with a US property, driver's license, employment, kids in schools, done a will in the US, ordered a burial plot; generally clear intent to live and die here.
The final one is for non-permanent people, ie, temp visas with no clear intent to remain, or people who live elsewhere but have US assets.
Both of the first categories benefit from a currently $5mill lifetime exemption for gift and estate taxes (any gifts made in excess of $13k per annum to anyone and $143k per annum to a non-citizen spouse are deducted from the total at death).
The 3rd category has an exemption for estate tax too, but it's only $60k.
This Deloittes booklet explains it quite clearly: http://www.deloitte.com/assets/Dcom-...ion_240811.pdf
What does everyone else think? Have I completely misunderstood this?
I'm not quite sure about this, though:
For starters, estate tax doesn't categorise as citizen or non-citizen, it's more 'US citizen', 'non-citizen but domiciliary', and 'non-citizen and non-domiciliary'. It's domicile at death that's important for estate tax, not citizenship per se; your domicile status can also be quite different to, say, your status for income tax or visa residency.
So, of those 3 categories:
US citizen is quite straightforward (although I expect there's a way to 'lose' your domicile for estate tax somehow if you have lots of highly-paid, clever lawyers).
The next category is for people who aren't citizens, but are able to demonstrate that the centre of their ongoing life is the US: typically GC holders, with a US property, driver's license, employment, kids in schools, done a will in the US, ordered a burial plot; generally clear intent to live and die here.
The final one is for non-permanent people, ie, temp visas with no clear intent to remain, or people who live elsewhere but have US assets.
Both of the first categories benefit from a currently $5mill lifetime exemption for gift and estate taxes (any gifts made in excess of $13k per annum to anyone and $143k per annum to a non-citizen spouse are deducted from the total at death).
The 3rd category has an exemption for estate tax too, but it's only $60k.
This Deloittes booklet explains it quite clearly: http://www.deloitte.com/assets/Dcom-...ion_240811.pdf
What does everyone else think? Have I completely misunderstood this?
#32
BE Forum Addict
Joined: Mar 2008
Location: Santa Cruz, CA
Posts: 4,913
Re: Will/ guardianship/ trust for US-based kids with UK relatives
#33
Some Where in the Desert
Joined: Jul 2006
Location: AZ
Posts: 247
Re: Will/ guardianship/ trust for US-based kids with UK relatives
Here's another thought not yet addressed - the nightmare scenario. That happens when neither you nor your husband are killed... but you're both totally incapacitated. Your will wouldn't come into effect, because you're both still alive... but you'd both be unable to act or make decisions. You might want to consider seting up both a durable power of attorney, and a medical power of attorney.
Ian
Ian
#35
Re: Will/ guardianship/ trust for US-based kids with UK relatives
Thanks for the feedback, the bit about wills/ trusts is useful.
I'm not quite sure about this, though:
I hesitate to correct a real lawyer with simply browsing about on the internet, but it just doesn't match anything else I've read about estate tax and exemptions.
For starters, estate tax doesn't categorise as citizen or non-citizen, it's more 'US citizen', 'non-citizen but domiciliary', and 'non-citizen and non-domiciliary'. It's domicile at death that's important for estate tax, not citizenship per se; your domicile status can also be quite different to, say, your status for income tax or visa residency.
So, of those 3 categories:
US citizen is quite straightforward (although I expect there's a way to 'lose' your domicile for estate tax somehow if you have lots of highly-paid, clever lawyers).
The next category is for people who aren't citizens, but are able to demonstrate that the centre of their ongoing life is the US: typically GC holders, with a US property, driver's license, employment, kids in schools, done a will in the US, ordered a burial plot; generally clear intent to live and die here.
The final one is for non-permanent people, ie, temp visas with no clear intent to remain, or people who live elsewhere but have US assets.
Both of the first categories benefit from a currently $5mill lifetime exemption for gift and estate taxes (any gifts made in excess of $13k per annum to anyone and $143k per annum to a non-citizen spouse are deducted from the total at death).
The 3rd category has an exemption for estate tax too, but it's only $60k.
This Deloittes booklet explains it quite clearly: http://www.deloitte.com/assets/Dcom-...ion_240811.pdf
What does everyone else think? Have I completely misunderstood this?
I'm not quite sure about this, though:
I hesitate to correct a real lawyer with simply browsing about on the internet, but it just doesn't match anything else I've read about estate tax and exemptions.
For starters, estate tax doesn't categorise as citizen or non-citizen, it's more 'US citizen', 'non-citizen but domiciliary', and 'non-citizen and non-domiciliary'. It's domicile at death that's important for estate tax, not citizenship per se; your domicile status can also be quite different to, say, your status for income tax or visa residency.
So, of those 3 categories:
US citizen is quite straightforward (although I expect there's a way to 'lose' your domicile for estate tax somehow if you have lots of highly-paid, clever lawyers).
The next category is for people who aren't citizens, but are able to demonstrate that the centre of their ongoing life is the US: typically GC holders, with a US property, driver's license, employment, kids in schools, done a will in the US, ordered a burial plot; generally clear intent to live and die here.
The final one is for non-permanent people, ie, temp visas with no clear intent to remain, or people who live elsewhere but have US assets.
Both of the first categories benefit from a currently $5mill lifetime exemption for gift and estate taxes (any gifts made in excess of $13k per annum to anyone and $143k per annum to a non-citizen spouse are deducted from the total at death).
The 3rd category has an exemption for estate tax too, but it's only $60k.
This Deloittes booklet explains it quite clearly: http://www.deloitte.com/assets/Dcom-...ion_240811.pdf
What does everyone else think? Have I completely misunderstood this?
#36
Re: Will/ guardianship/ trust for US-based kids with UK relatives
All I can tell you is my lawyer wanted to clarify that both hubby and I were citizens to ensure limited tax penalties to our children. The purpose of estate being taxed on non-US citizen to their beneficiaries is because the estate could be taken out of the country. He made that very clear to us.
The $5m exemption applies to estates of non-U.S. citizens as long as they are domiciled in the United States.
This is made quite clear in the booklet from Deloitte that's already referred to.
If you received advice in writing, perhaps post the details here (with personal details removed).
Becoming a U.S. citizen does have the advantage of removing the requirement to be "domiciled" for the $5m threshold to apply. Perhaps your lawyer was referring to that?
Last edited by JAJ; Jan 29th 2013 at 11:39 pm.
#37
Re: Will/ guardianship/ trust for US-based kids with UK relatives
We are US citizens so it was not put in writing, but he did explain it to both my husband and I. It was a question I had raised again after the discussion here. He did tell us that we should expect forthcoming changes that are expected towards the end of the year. Sounds like Washington is still dabbling with this. The domiciled issue really has to do with laws that apply within their borders. I assume other tax issues would depend on the tax laws of the respective country the beneficiary resides in. Surely that would apply anyway regardless of whether the person is a US citizen or not. A US citizen obviously has to disclose all income to the US every year anyway. If you want the name of the lawyer, I can pm it to you JAJ.
#38
BE Forum Addict
Thread Starter
Joined: Apr 2011
Location: Ohio
Posts: 1,834
Re: Will/ guardianship/ trust for US-based kids with UK relatives
This is puzzling - I'm still failing to find any reference anywhere that over-rides the $5mill exemption (apparently it's $5.25mill now) for US citizens AND anyone domiciled here at death (likely all GC holders).
This site explains it quite clearly, I think.
"Under current law, everyone gets to transfer $5.25 million of property without paying any gift and estate tax, which means that very few families pay the tax."
http://www.nolo.com/legal-encycloped...oncitizen.html
Everything I'm reading says that any US-domiciled person can bequest their first $5mill to anyone free of all taxes for the doner and recipient (as at least in the US, there are no income taxes on an inheritance for the donee).
The only citizen/non-citizen difference is for spouses, where an estate in excess of $5mill would be taxable when given to a non-US citizen spouse, unless s/he sets up a QDOT trust, or one is already prescribed in the deceased's will.
The only other thing I could find referring to international estate tax is that if you're a US resident (I think for income tax purposes, or maybe visa purposes, not quite sure) and you get a bequest from, say, your UK parents, then you have to declare it if it's over $100k. But it's only a reporting requirement; it's not taxable.
Sorry, I don't mean to keep banging the drum pointlessly and I'm honestly not just trying to score points, but this matters to us, being newly-minted GC holders in the process of buying our first house. I was feeling quite tax smug until now, having already spotted the gift tax trap that putting the house into joint names when all the money is currently in hubby's name could constitute a taxable transfer (the old non-citizen spouse thing again) payable on the sale of the house; we've dodged this one using 2012 and 2013 non-US citizen spousal gift tax allowances to make the house officially half each.
We have 'making a will' on our post-house purchase to do list, and I've been assuming that it'll be fairly simple - leave to each other, then leave to kids, all tax-free etc - as we're never, ever going to be within spitting distance of the $5mill so don't even care about the lack of spousal transfer over that amount. So I've been thinking it's something pretty much any lawyer can do, because I can't find any reference to it mattering at this estate size level that none of us are US citizens. Having to find a lawyer versed in international estate planning would be a different issue...
Is there any chance this is a state-specific thing? I know Arizona doesn't have any estate taxes or rules above the federal ones, but maybe other states do..?
B****y taxes! And we haven't even started in on our first income tax return as residents yet!
This site explains it quite clearly, I think.
"Under current law, everyone gets to transfer $5.25 million of property without paying any gift and estate tax, which means that very few families pay the tax."
http://www.nolo.com/legal-encycloped...oncitizen.html
Everything I'm reading says that any US-domiciled person can bequest their first $5mill to anyone free of all taxes for the doner and recipient (as at least in the US, there are no income taxes on an inheritance for the donee).
The only citizen/non-citizen difference is for spouses, where an estate in excess of $5mill would be taxable when given to a non-US citizen spouse, unless s/he sets up a QDOT trust, or one is already prescribed in the deceased's will.
The only other thing I could find referring to international estate tax is that if you're a US resident (I think for income tax purposes, or maybe visa purposes, not quite sure) and you get a bequest from, say, your UK parents, then you have to declare it if it's over $100k. But it's only a reporting requirement; it's not taxable.
Sorry, I don't mean to keep banging the drum pointlessly and I'm honestly not just trying to score points, but this matters to us, being newly-minted GC holders in the process of buying our first house. I was feeling quite tax smug until now, having already spotted the gift tax trap that putting the house into joint names when all the money is currently in hubby's name could constitute a taxable transfer (the old non-citizen spouse thing again) payable on the sale of the house; we've dodged this one using 2012 and 2013 non-US citizen spousal gift tax allowances to make the house officially half each.
We have 'making a will' on our post-house purchase to do list, and I've been assuming that it'll be fairly simple - leave to each other, then leave to kids, all tax-free etc - as we're never, ever going to be within spitting distance of the $5mill so don't even care about the lack of spousal transfer over that amount. So I've been thinking it's something pretty much any lawyer can do, because I can't find any reference to it mattering at this estate size level that none of us are US citizens. Having to find a lawyer versed in international estate planning would be a different issue...
Is there any chance this is a state-specific thing? I know Arizona doesn't have any estate taxes or rules above the federal ones, but maybe other states do..?
B****y taxes! And we haven't even started in on our first income tax return as residents yet!
#39
Re: Will/ guardianship/ trust for US-based kids with UK relatives
I understand Kodokan. I think I will call my lawyer's office and ask them if there is any link I can get to - to see this particular issue. Or, maybe he can offer me a copy of that particular law if not available online.
#40
BE Forum Addict
Thread Starter
Joined: Apr 2011
Location: Ohio
Posts: 1,834
Re: Will/ guardianship/ trust for US-based kids with UK relatives
Oh, how helpful of you - I expect there are lots of forumites who'd like to know if they/ their kids are going to be hit with an unexpected bill if they don't plan properly. Let us know if you find out anything more concrete.