Non-Residents and Estate Tax

A Homeowner Non-Citizen is usually taxed for estate tax purpose as a United States Person, except for marital deduction concerns.

Who is a Homeowner for Estate Tax Purposes? A U.S. estate tax functions is not the same as the meaning of “resident” for U.S. earnings tax purposes. 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 domicile by living at a place, for even a quick period, with no guaranteed present objective of leaving. Residence without the requisite objective to remain forever does not be enough to make up domicile. An objective to change residence is not reliable unless accompanied by a real removal from the jurisdiction. The IRS will analyze the duration of the person’s stay in the United States, the place of friends and family and important individual belongings, the center of the individual’s monetary and company interests, and the size and area of the person’s home.
Lifetime Presents to a Non-Citizen Non-Resident or Homeowner Non-Citizen spouse are restricted under Code section 2523(i). There is no endless marital reduction, however there is an expanded yearly exclusion, presently $139,000 (2012 ). Therefore, if partners have substantially different worths in their estates, while it may be an excellent concept to attempt to match them in order to accomplish the Bypass Planning. The more property you can assign to the estate of the Non-Resident Non-Citizen or Local Non-Citizen partner, the less property will go through the estate tax marital reduction guidelines described listed below for presents to a non-citizen spouse. Typically the marital deduction will only be offered for transfers to a non-citizen spouse if the transfer is to a certified domestic trust. 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 spouse ends up being an US resident prior to that time, then the marital deduction can be offered in that circumstance as well.

Qualified Domestic Trust (“QDOT”). A certified domestic trust (QDOT) is a trust that fulfills the following requirements:
( 1) The trust instrument should require that a minimum of one trustee (the “U.S. trustee”) of the trust be a private person of the United States or a domestic corporation. For this purpose, a domestic corporation is specified as a corporation that is created or arranged 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 circulation (aside from a circulation of earnings) may be made from the trust unless a trustee who is a specific citizen of the Unite States or a domestic corporation can withhold from the distribution the estate tax troubled the distribution.
( 3) The trust must satisfy the requirements of policies to ensure the collection of any estate tax enforced on the trust.

( 4) The decedent’s executor need to choose that the trust be dealt with as a QDOT.
Also, if the worth of the trust as finally identified for estate tax purposes exceeds $2MM, the trust should also have particular security plans. Either the United States trustee need to be a bank, or the trustee supplies 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 Assets Must be Owned. Although a QDOT will be offered for the estate of the US resident decedent to declare a marital reduction for a non-citizen spouse, consider that the trust will have to have a United States trustee which bond might be due. If there are possessions that the spouse will wish to control himself or herself without the trustee, think about methods to get those into the partner’s name throughout life so there is no issue with needing to claim the marital deduction at death.