Estate Planning for Resident and Non-Resident 1/29/2019 آ Estate Planning for Resident and...
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Estate Planning for Resident
and Non-Resident Aliens Navigating Estate, Gift and GST Tax Rules; Leveraging Estate and Lifetime Gifting Opportunities
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TUESDAY, JANUARY 29, 2019
Presenting a live 90-minute webinar with interactive Q&A
James I. Dougherty, Partner, Withersworldwide, Greenwich, Conn.
Marissa Dungey, Partner, Withersworldwide, Greenwich, Conn.
Sasha Grinberg, Attorney, Cadwalader, New York
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Estate Planning for Resident and Non-Resident Aliens: Navigating Estate, Gift and GST Tax Rules; Leveraging Estate and Lifetime Gifting Opportunities
James I. Dougherty Marissa Dungey Sasha Grinberg Withers Bergman LLP Withers Bergman LLP Cadwalader, Wickersham & Taft LLP email@example.com firstname.lastname@example.org email@example.com
Strafford CLE | January 29, 2019
I. Estate, gift and generation-skipping transfer tax rules applicable to aliens A. U.S. residents
B. Non-U.S. residents
C. Effect of bilateral estate and gift tax treaties
II. Sample estate planning scenarios A. U.S. legal permanent resident married to U.S. citizen
B. Both spouses are U.S. legal permanent residents
C. Non-resident alien married to U.S. citizen
D. Non-resident alien with U.S. assets
III. Potential trouble spots A. Choosing executors/trustees
B. Children with different citizenships
C. Covered expatriates
IV. Potential opportunities A. Gifts/bequests by non-resident aliens
B. Dynasty trusts
C. Reporting issues for U.S. recipients
Why do we care whether a person is a non- citizen/non-resident
The US Citizen/US Resident The non-citizen/non-resident
Estate tax imposed on worldwide estate Estate/gift tax imposed on only US situs assets
Deductions not prorated Certain deductions prorates
Current exemption of $11.4 million Exemption of $60,000 for estate tax/None for gift tax
Credit allowed for foreign taxes No credit for foreign taxes
Generally no requirement for transfer certificate Transfer certificates often required
Form 706 Form 706-NA
Same filing deadlines
Same rate table
Potential availability of treaty benefits
Income tax basis step up allowable to both
Death is the triggering event for estate tax and definition of gift is the same
Residency for Transfer Tax Purposes
• Code provisions: • I.R.C. § 2001(a): “A tax is hereby imposed on the transfer of the taxable estate of
every decedent who is a citizen or resident of the United States.”
• I.R.C. § 2101(a): “… a tax is hereby imposed on the transfer of the taxable estate (determined as provided in I.R.C. § 2106) of every decedent nonresident not a citizen of the United States.”
• I.R.C. § 2511(a): “…the tax imposed by Section 2501 … in the case of a nonresident not a citizen of the United States, shall apply to a transfer only if the property is situated within the United States.”
• Citizenship • Definition: Estate tax provisions do not define the term US citizen, but Treas. Reg.
§ 1.1-1(c) (an income tax regulation) accurately defines the term as “Every person born or naturalized in the United States and subject to its jurisdiction is a citizen.”
• Dual Citizens: If a person has US citizenship and the citizenship of another country, they are treated as a US citizen for estate tax purposes (Estate of Vriniotis, 79 T.C. 298 (1982)).
• US Possessions: I.R.C. §§ 2208 and 2209 provide special provisions for those who acquired citizenship as a result of citizenship of the possession
• Concept of resident for gift and estate tax purposes is different than for income tax purposes – here, we look to the person’s domicile
• Treas. Reg. § 20.0-1(b)(1): “A ‘resident’ decedent is a decedent who, at the time of his death, had his domicile in the United States.”
• Treas. Reg. § 20.0-1(b)(2): “A ‘nonresident’ decedent is a decedent who, at the time of his death, had his domicile outside the United States under the principles set forth in subparagraph (1) of this paragraph.”
• Two requirements for domicile, Treas. Reg. § 25.2501-1(b): • Living in a place, even for a brief period of time
• No definite present intention of leaving the place
• Difficulty in determining intent
• Courts look to many factors (highly subjective):
• Location of residences, expensive possessions and investments
• Relative amount of time spent at claimed domicile and in other countries
• Location of family and friends
• Location of church, business activities and club memberships
• Jurisdiction of voter’s registration and driver’s license
• Declarations of residence or intent (visa applications, wills, tax returns, etc.)
• Domicile of Origin (i.e. where the person was born)
Overlap with Immigration Law Concepts
• “Green cards”: Permanent resident cards allow for holder to permanently remain in the US and is controlling for US income tax purposes. It is not controlling for estate tax purposes (Estate of Khan, TC Memo 1998-22)
• Temporary Visas: Visa programs which explicitly require a visa holder to retain domicile in their home country generally suggest the intent to remain in the US is not present, but it is not controlling for estate tax purposes as facts can demonstrate domicile (Estate of Jack v. U.S., 54 Fed. Cl. 590 (2002)).
• Illegal Aliens: Can be US domiciled for estate tax purposes based on facts despite being potentially subject to deportation (Rev. Rul. 80-209)
Gift Taxation of US Residents - Rates and Exclusion Amounts
• Unified gift and estate tax credit – basic exclusion amount is $11.4 Million in 2019, which is indexed for inflation (scheduled to be reduced in 2026)
• Taxable gifts over credit amount are taxed at a 40% rate, I.R.C. § 2502
• Other exclusions and deductions from gift tax
• Annual Exclusion
• Exclusion for Qualified Medical and Education Expenses
• Marital Deduction
• Charitable Deduction
Annual Exclusion Gifts
• Annual exclusion
• Per donee, per year
• $15,000 in 2019, I.R.C. § 2503(b) (indexed for inflation)
• Applies to gifts other than gifts of future interests (i.e. a present interest in property):
• Outright transfers
• In trust accompanied by a right to withdraw
• A Section 2503(c) Minor’s Trust
• An interest in an entity, but only if certain conditions are met
Exclusion for Qualified Education and Medical Expenses
• Must be paid directly to educational institution or person who provides medical care to qualify for this exclusion, I.R.C. § 2503(e)
• Education – tuition expenses defined in Treas. Reg. § 25.2503-6(b)(2)
• The unlimited exclusion is permitted for tuition expenses of full-time or part-