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Estate Planning Strategies for Non Citizens

By R. Douglas DeNardo, Esq.

 
 

The United States is one of the few industrialized countries to impose transfer taxes based on citizenship or residency in the U.S. For purposes of this article, a "resident" is one who acquires a domicile in the U.S. by living there, however briefly, with no definite apparent intention of leaving. It can apply to U.S. citizens, permanent resident alien (PRAs or greencard holders) and Non Resident Aliens (NRAs).

U.S. citizens and PRAs are subject to estate and gift tax on worldwide assets. For NRAs, however, the rules become much more complex. Deceased non residents are subject to U.S. estate taxation with respect to their U.S.-situated assets (generally, U.S. real estate, tangible personal property in the U.S., and securities of U.S. companies).

Estate tax treaties between the U.S. and other countries often provide more favorable tax treatment to non residents by limiting the type of asset considered situated in the U.S. and subject to U.S. estate taxation. The United States has established Estate Tax Treaties with certain countries to establish a domicile for the prevention or mitigation of double taxation. Estate Tax Treaties exist with Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, Norway, South Africa, Sweden, Switzerland and United Kingdom. Terms vary by country.

Marriages with a non-citizen spouse

A marriage to a non-U.S. citizen (whether a permanent resident alien or non resident alien) presents its own unique issues which also require specialized estate planning.

For federal estate tax purposes, any transfer to a spouse qualifies for an unlimited federal estate tax deduction. This means that you can pass unlimited assets to your spouse and pay no federal estate tax (the theory being that the U.S. does not want to impoverish a spouse by imposing a wealth transfer tax on transfers to the surviving spouse).

The unlimited marital deduction, however, is not available when assets are transferred to a spouse who is not a U.S. citizen. However, transfers to a non-citizen spouse, can qualify for the unlimited deduction if a Qualified Domestic Trust (QDOT) is used.

Basic parameters of a QDOT include:

The PRA or NRA may opt to become a U.S. citizen prior to the filing of the estate tax return (usually within nine months of the citizen spouse's death).

Other issues that citizens married to non-citizens should be aware of include:

Please keep in mind this is a very high level overview of an incredibly complex issue. Working with an estate planner and a tax professional may save a lot of time and money in the long run to ensure that your estate is administered they way you want.

Non Resident Aliens (NRAs)

Non Resident Aliens should also be aware that:

 


© 2004 RGPC Articles are not intended to be comprehensive. Readers should not act upon any information herein without seeking specific legal advice from the Firm's attorneys.

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Follow Us: Follow Rothman Gordon on LinkedIn Follow Rothman Gordon on YouTubeFollow Rothman Gordon on Twitter

 
Primerusmember
 
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Top Workplace 2011Top Workplace 2012 Top Workplace 2013
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Rothman Gordon Pittsburgh Marathon sponsor