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		X
Currency in U.S. Safe Deposit Box		X		X
Cash Deposits in a U.S. Bank			X	X
U.S. Real Estate		X		X
Non-U.S. Real Estate			X			X
U.S. Stocks		X				X
Non-U.S. Stocks			X			X
U.S. Government and Corporate Bonds			X			X
U.S. States/Muni Bonds		X				X
U.S. Partnership/LLC Interest		Depends (a)				X
Retirement Plans			X	N/A
Life Insurance Cash Value		X				X
Life Insurance Death Benefits			X			X

(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 ddnelson@gmail.com. 

Nonresident Aliens May Be Subject to US Estate Tax (and Must file an Estate Tax Return) on their Assets in the US

Deceased nonresidents who were not American citizens are subject to U.S. estate taxation with respect to their U.S.-situated assets. 

U.S.-situated assets include American real estate, tangible personal property, and securities of U.S. companies. A nonresident’s stock holdings in American companies are subject to estate taxation even though the nonresident held the certificates abroad or registered the certificates in the name of a nominee.

Exceptions: Assets that are exempt from U.S. estate tax include securities that generate portfolio interest, bank accounts not used in connection with a trade or business in the U.S., and insurance proceeds.

Estate tax treaties between the U.S. and other countries often provide more favorable tax treatment to nonresidents by limiting the type of asset considered situated in the U.S. and subject to U.S. estate taxation. Executors for nonresident estates should consult such treaties where applicable.

Executors for nonresidents must file an estate tax return, Form 706NA, United States Estate (and Generation-Skipping) Tax Return, Estate of a nonresident not a citizen of the United States, if the fair market value at death of the decedent's U.S.-situated assets exceeds $60,000. However, if the decedent made substantial lifetime gifts of U.S. property, and used the applicable $13,000 “unified credit exemption” amount to eliminate or reduce any gift tax on the lifetime gifts, a U.S. estate tax return may still be required even if the value of the decedent’s U.S. situated assets is less than $60,000 at the date of death (due to the decrease in the “unified credit exemption” for the lifetime gifts). See Unified Credit (Applicable Credit Amount) Section in Publication 559, Survivors, Executors, and Administrators, and the Form 706NA Instructions for more information.

American citizens are subject to U.S. estate taxation with respect to their worldwide assets. An estate tax return, Form 706, United States Estate (and Generation-Skipping) Tax Return, Estate of a citizen or resident of the United States, is required for a deceased American citizen, if the fair market value at death of the decedent's worldwide assets exceeds the "unified credit exemption" amount in effect on the date of death. However, if the U.S. citizen made substantial lifetime gifts, and used the applicable “unified credit exemption” amount to eliminate or reduce any gift tax on the lifetime gifts, a U.S. estate tax return may still be required even if the value of the decedent’s worldwide assets is less than the “unified credit exemption” amount at the date of death (due to the decrease in the “unified credit exemption” for the lifetime gifts). To determine the “unified credit exemption” amount for American citizens for any particular year, refer to the Instructions to Form 706 or to Publication 559, Survivors, Executors, and Administrators.

The Internal Revenue Service may collect any unpaid estate tax from any person receiving a distribution of the decedent’s property under transferee liability provisions of the tax code.

Some Nonresidents with U.S. Assets Must File Estate Tax Returns

Deceased nonresidents who were not American citizens are subject to U.S. estate taxation with respect to their U.S.-situated assets. 

U.S.-situated assets include American real estate, tangible personal property, and securities of U.S. companies. A nonresident’s stock holdings in American companies are subject to estate taxation even though the nonresident held the certificates abroad or registered the certificates in the name of a nominee.

Exceptions: Assets that are exempt from U.S. estate tax include securities that generate portfolio interest, bank accounts not used in connection with a trade or business in the U.S., and insurance proceeds.

Estate tax treaties between the U.S. and other countries often provide more favorable tax treatment to nonresidents by limiting the type of asset considered situated in the U.S. and subject to U.S. estate taxation. Executors for nonresident estates should consult such treaties where applicable.

Executors for nonresidents must file an estate tax return, Form 706NA, United States Estate (and Generation-Skipping) Tax Return, Estate of a nonresident not a citizen of the United States, if the fair market value at death of the decedent's U.S.-situated assets exceeds $60,000. However, if the decedent made substantial lifetime gifts of U.S. property, and used the applicable $13,000 “unified credit exemption” amount to eliminate or reduce any gift tax on the lifetime gifts, a U.S. estate tax return may still be required even if the value of the decedent’s U.S. situated assets is less than $60,000 at the date of death (due to the decrease in the “unified credit exemption” for the lifetime gifts). See Unified Credit (Applicable Credit Amount) Section in Publication 559, Survivors, Executors, and Administrators, and the Form 706NA Instructions for more information.

American citizens are subject to U.S. estate taxation with respect to their worldwide assets. An estate tax return, Form 706, United States Estate (and Generation-Skipping) Tax Return, Estate of a citizen or resident of the United States, is required for a deceased American citizen, if the fair market value at death of the decedent's worldwide assets exceeds the "unified credit exemption" amount in effect on the date of death. However, if the U.S. citizen made substantial lifetime gifts, and used the applicable “unified credit exemption” amount to eliminate or reduce any gift tax on the lifetime gifts, a U.S. estate tax return may still be required even if the value of the decedent’s worldwide assets is less than the “unified credit exemption” amount at the date of death (due to the decrease in the “unified credit exemption” for the lifetime gifts). To determine the “unified credit exemption” amount for American citizens for any particular year, refer to the Instructions to Form 706 or to Publication 559, Survivors, Executors, and Administrators.

The Internal Revenue Service may collect any unpaid estate tax from any person receiving a distribution of the decedent’s property under transferee liability provisions of the tax code.

Special Rules Applicable to Gifts or Bequests from Covered Expatriates

U.S. citizens and long-term residents who relinquished their U.S. citizenship or ceased to be U.S. lawful permanent residents (green card holders) on or after June 17, 2008, and who meet specific average tax or net worth thresholds on the day prior to their expatriation are considered “covered expatriates” – subject to IRC section 877A. See Expatriation Tax for more information on covered expatriates.

U.S. citizens and residents who receive gifts or bequests from covered expatriates under IRC 877A may be subject to tax under new IRC section 2801, which imposes a transfer tax on U.S. persons who receive gifts or bequests on or after June 17, 2008, from such former U.S. citizens or former U.S. lawful permanent residents.

In addition, covered expatriates under IRC 877A are not considered U.S. expatriates for purposes of Form 706NA, United States Estate (and Generation-Skipping) Tax Return, Estate of a nonresident not a citizen of the United States.