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Estate and Elder Law

Nonresident Alien Estate Planning

The United States remains a magnet for foreign investment, troubled times notwithstanding. Whether the wealth coming into the U.S. is accompanied by its owners, whether or not the owners intend to remain here indefinitely, or whether the investments are owned by wealthy multinational families, the family migration patterns of the modern era present a variety of challenges and opportunities for estate planners.

 
Authors Jane Peebles and Michael Karlin write: [A]n alien is considered a U.S. resident for purposes of the estate and gift tax purposes if he or she is domiciled in the U.S. at the time of his or death or at the time of a gift. If an alien enters the U.S. for even a brief period of time, with no definite present intention of later leaving the U.S., he or she is deemed to be domiciled in the U.S. and, therefore, is considered a U.S. resident for estate and gift tax purposes.
 
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Generally, nonresident aliens are subject to Federal estate tax only on "U.S.-situs" property, with no credit for foreign death taxes paid. (The foreign country may allow a credit against its death taxes for Federal estate tax paid.) Nonresident aliens are also subject to Federal gift tax on lifetime gifts of U.S.-situs property, but not on gifts of U.S.-situs intangible property, with exceptions if the individual is a former U.S. citizen or long-term resident.
 
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The estate of a nonresident alien receives a credit of only $13,000 against the federal estate tax (the equivalent of a $60,000 exemption), an exemption level that has stayed unchanged since 1988. There is no credit for gifts made during the lifetime of a nonresident alien. Nonresident aliens do, however, receive the benefit of the so-called annual exclusion from gifts (currently $13,000 per donee) and unlimited gifts to pay tuition and medical expenses.
 
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The United States is party to treaties dealing with the estate tax with Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, Norway, South Africa, Switzerland and the United Kingdom. A limited number of these treaties also deal with gift tax: Austria, Denmark, France, Germany, Japan and the United Kingdom. In the case of Australia, there is a separate treaty dealing with gifts. Our agreement with Canada relating to the estate tax is contained in the income tax treaty, as Canada does not have an estate tax but does impose tax on capital gains at death.
 
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Nonresident aliens are entitled to claim a lifetime $1 million GST exemption [generation-skipping transfer tax exemption] and the same GST exemption on death as U.S. citizens and residents and are subject to the automatic allocation of exemption to generation skipping transfers. The Regulations establish two rules for the applicability of Chapter 13 of the Code, which contains the GST rules, to transfers by nonresident aliens. Chapter 13 is applicable to transfers at death by nonresident aliens to the extent that the transferred property is situated in the United States for purposes of the estate tax laws.
 
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It is generally easier for nonresident aliens, especially those not protected by treaties, to avoid gift tax than estate tax. Among the most common strategies to avoid U.S. gift tax are:
  1. making gifts of U.S.-situs intangible assets;
  2. transferring U.S. real property to a corporation, partnership or a limited liability company to convert the holding to an intangible and, after a period of time (generally at least a year), making gifts of interests in the entity, outright or in trust, to children who are U.S. transfer tax residents;...
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Among the most common strategies for minimizing or avoiding U.S. estate tax are:
  1. not holding at death any assets that have a U.S. situs for estate tax purposes;
  2. releasing all general powers of appointment granted under U.S. trusts;...

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LEXISNEXIS® TAX ADVISOR - FEDERAL TOPICAL -  LexisNexis(R) Tax Advisor - Federal Topical is a  480-chapter treatise on federal income tax, estate & gift tax , international tax, and federal tax procedure, drawn from fifteen premier Matthew Bender tax treatises, including Taxation of Inventories, Rhoades  & Langer  U.S. International Tax & Tax Treaties,  Federal Tax Practice & Procedure, Tax Controversies, Tax Planning for  Corporations and Shareholders, and others, and is updated weekly.   Its chapters have been written by more than 140 expert tax attorneys, professors and CPAs nationwide and contain thousands of hypothetical examples, Practice Insights, drafting checklists, and other helpful tools. LEXISNEXIS® TAX ADVISOR - FEDERAL TOPICAL's gift and estate tax offerings include:

Part 1. Computing Federal Income Tax

Part 2. Taxpayer Groups

Vol. 2E Exempt Organizations

Vol. 2F Trust & Estate Income Tax

Part 3. Gift, Estate & Generation-Skipping Transfer Taxes

Vol. 3A General Principles

Vol. 3B Transfers & Interests Subject to Tax

Vol. 3C Estate & Gift Deductions

Vol. 3D Exclusions, Credits & Disclaimers

Vol. 3E Generation-Skipping Transfer Tax & Grantor Trusts

Vol. 3F Valuation

Vol. 3G Practice & Procedure

Vol. 3H Planning Tips

Part 4. International Taxation

Vol. 4B Foreign Persons' Activities in the U.S.

Chapter 4B:11 Estate and Gift Taxation of Foreign Persons

§ 4B:11.syn Estate and Gift Taxation of Foreign Persons

§ 4B:11.01 Gift Tax Rules Applied to Nonresident Aliens

§ 4B:11.02 Estate Tax Rules Applied to Nonresident Aliens

§ 4B:11.03 Estate Tax Treaties

§ 4B:11.04 Estate Planning in Brief

Part 5. Federal Tax Practice, Procedure & Controversies

Part 6. Federal Payroll Taxes

Part 7. Federal Excise Taxes

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