Estate Tax Planning for Nonresident Aliens: Establishing Domicile, Gifting, Treaties and Marital Transfers

Description

Being a resident entitles a taxpayer to the higher exemption, use of the annual exclusion and gift-splitting, but it also exposes a taxpayer's worldwide assets to estateand gift tax. Being a nonresident alien subjects property "situated" in the U.S. to estatetax. With the applicable exemption only $60,000 this often means a significant tax bill. Gifts of stock in U.S. corporations escape U.S. gift tax but, the same transfer made at death is subject to estate tax, making estate planning crucial for nonresident aliens.

Where an individual is domiciled is a facts and circumstances test, and taxpayers may be considered domiciled in multiple countries. A U.S. treaty with another country can help resolve dual-domicile issues and offer relief from double taxation.

Often a U.S. resident is married to a noncitizen spouse. Although assets are easily transferred between U.S. spouses, the resident marital deduction is unlimited, a nuptial gift made to a nonresident spouse is subject to an annual exclusion of $155,000 (2019), and portability is not available if either spouse is a nonresident. On the upside, treaty benefits or qualified domestic trusts can be used to mitigate or defer the estatetax effects of these transfers.

Listen as our panel of experts explains tax planning techniques for nonresident aliens.