Non-Residents and Estate Tax

A Homeowner Non-Citizen is usually taxed for estate tax purpose as a United States Person, other than for marital reduction problems.

Who is a Homeowner for Estate Tax Purposes? A U.S. estate tax purposes is not the like the meaning of “resident” for U.S. income tax functions. For U.S. estate tax purposes, a resident decedent is somebody who, at the time of death, was domiciled in the US. A person acquires a residence by living at an area, for even a quick duration, with no definite present intent of leaving. Residence without the requisite intention to remain forever does not suffice to make up domicile. An objective to alter residence is not effective unless accompanied by a real removal from the jurisdiction. The Internal Revenue Service will examine the duration of the individual’s stay in the United States, the place of family and friends and crucial personal valuables, the center of the person’s financial and organisation interests, and the size and location of the person’s home.
Lifetime Gifts to a Non-Citizen Non-Resident or Homeowner Non-Citizen partner are limited under Code section 2523(i). There is no limitless marital deduction, but there is a broadened yearly exemption, currently $139,000 (2012 ). For that reason, if spouses have substantially different worths in their estates, while it may be an excellent idea to attempt to match them in order to achieve the Bypass Planning. The more property you can designate to the estate of the Non-Resident Non-Citizen or Local Non-Citizen spouse, the less property will undergo the estate tax marital deduction guidelines described below for presents to a non-citizen partner. Typically the marital deduction will only be offered for transfers to a non-citizen spouse if the transfer is to a qualified domestic trust. Nevertheless, if the spouse transfers property received from the decedent to such a trust prior to the due date for the Estate Tax return (706 ), or if the partner ends up being an US citizen prior to that time, then the marital deduction can be readily available because situation as well.

Qualified Domestic Trust (“QDOT”). A certified domestic trust (QDOT) is a trust that meets the list below requirements:
( 1) The trust instrument must need that a minimum of one trustee (the “U.S. trustee”) of the trust be an individual citizen of the United States or a domestic corporation. For this function, a domestic corporation is defined as a corporation that is produced or organized under the laws of the United States or under the laws of any state or the District of Columbia.

( 2) The trust instrument should supply that no distribution (aside from a distribution of income) may be made from the trust unless a trustee who is an individual resident of the Unite States or a domestic corporation can withhold from the distribution the estate tax imposed on the distribution.
( 3) The trust needs to fulfill the requirements of policies to ensure the collection of any estate tax enforced on the trust.

( 4) The decedent’s administrator need to elect that the trust be dealt with as a QDOT.
Also, if the value of the trust as lastly identified for estate tax functions surpasses $2MM, the trust should also have particular security plans. Either the US trustee should be a bank, or the trustee provides a strictly specified surety bond or letter of credit. See Treas. Reg. 20.2056A-2(d)( 1 )(i). If there is more than one QDOT, they are aggregated for purposes of determining whether these security arrangements are required.

Consider Where Properties Must be Owned. Even though a QDOT will be available for the estate of the US resident decedent to declare a marital deduction for a non-citizen partner, consider that the trust will have to have a United States trustee and that bond may be due. If there are assets that the partner will wish to manage himself or herself without the trustee, consider methods to get those into the partner’s name during life so there is no issue with needing to declare the marital deduction at death.

Written by Shirley Allen