As reported in Trust Advisor’s recent article, “Foreign Spouses Need Strong Trust Planning,” there has been a huge boost of individuals who are not U.S. citizens, but who establish residence here. They’re known as “resident aliens” under U.S. tax law. There are also non-resident, non-U.S. citizens (“non-resident aliens”) who will invest in real and personal property situated in the state. This can include a wide variety of real and personal property, from vacation homes to ownership interests in a holding or operating company.
This uptick in foreign business and personal investment means more attention to the complex federal tax requirements applicable to non-U.S. citizens for income and transfer tax purposes. In addition, there are tax issues that impact non-U.S. citizens in connection with transfers of money or property during their lifetime or at death.
Generally, the U.S. imposes estate and gift tax on the worldwide assets of U.S. citizens and resident aliens. A major step in the estate planning process is determining your citizenship and, if married, that of your spouse. The estate and gift tax ramifications are, in large part, determined by the type of tax, domicile tests, marital status, property ownership and situs tests and treaty provisions.
For the U.S. estate and gift tax rules, “residence” and “domicile” are the critical thresholds that should be analyzed by your estate planning and tax attorney. The test to determine “residence” for transfer tax purposes is subjective. An individual donor is a U.S. resident for U.S. gift tax purposes if he or she is “domiciled” in the U.S. at the time of the gift. For U.S. estate tax purposes, a deceased person is a U.S. resident decedent if he or she was “domiciled” in the U.S. at death. The Treasury defines “domicile” as living in a country without a definite present intention of leaving.
Proving that one has U.S. domicile takes more than simply having a “green card.” A careful determination needs to be made by examining a facts and circumstances analysis of the individual’s “intent to leave.” This is demonstrated in such elements as length of U.S. residence, voter registration, tax returns, visa status, driver’s license issuance and social and religious affiliations.
This can be a complex area of law, even within estate planning. Work with an experienced estate planning attorney who can help you not just determine the best tax strategies, but who can help you align your assets with your plan and track changes over time. That’s what will make your estate plan work when you need it to, so it’s best to work with your estate planning attorney on an ongoing basis.
For more about the importance of aligning, verifying and tracking asset alignment with your estate plan, explore our website and contact us to schedule your consultation today!
Reference: Trust Advisor (April 24, 2017) “Foreign Spouses Need Strong Trust Planning”