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August 10, 2016

Estate and Gift Tax Planning for US Nonresidents with US Real Estate and Other US assets

Nonresidents are taxed differently on their property located in the USA than those who are citizens or permanent residents.  They do not get the same exemptions and credits and can without proper planning end up paying a lot of estate or gift taxes.

The table below shows when the IRS considers US property owned by nonresidents to be subject to estate taxes (paid upon death of the nonresident) and gift taxes (when US property and assets are transferred without consideration) during the nonresidents life.
                                                                                   ESTATE TAX                     GIFT TAX

Estate Tax Gift Tax
Property Type Yes No Yes No
Tangible Personal Property in U.S. (e.g., artwork, jewelry) X
Currency in U.S. Safe Deposit Box X
Cash Deposits in a U.S. Bank
U.S. Real Estate X
Non-U.S. Real Estate
U.S. Stocks X

Non-U.S. Stocks
U.S. Government and Corporate Bonds
U.S. States/Muni Bonds X

U.S. Partnership/LLC Interest Depends (a)

Retirement Plans
Life Insurance Cash Value X

Life Insurance Death Benefits

(a) The law is not clear and interpretations go both ways with respect to US situs of assets and situs of acutal partnership or LLC interest.

The table below shows the differences between estate and gift taxes paid by a citizen or permanent resident from that which is paid by a nonresident (NRA) including tbe differences in exemptions, and other rules.

U.S. Person NRA
Estate Tax Exemption Amount $5,430,000 per person $60,000 per person
Top Estate and Gift Tax Rate 40% 40%
Lifetime Gift Tax Exemption Amount $5,430,000 per person $0
Annual Gift Tax Exclusion Amount $14,000 per donee $14,000 per donee
Gift Splitting Between Spouses Yes, if both spouses are U.S. people No
Marital Deduction for Lifetime Gifts Unlimited if recipient spouse is a U.S. citizen $147,000 per year if recipient spouse is a non-U.S. citizen4
Marital Deduction for Testamentary Bequests Unlimited if recipient spouse is a U.S. citizen $0, if recipient spouse is a non-U.S. citizen, unless assets are held in a Qualified Domestic Trust
Gift Tax Exclusion for Direct Payment of Medical and Education Expenses Yes Yes
Portability of Decedents Exemption Yes No

If you are a nonresident and need estate tax or gift tax planning for your US assets contact us at 

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