Trusts and Estates for Foreign Nationals

What You Don’t Know and Don’t Plan for Could Cost Your Loved Ones Hundreds of Thousands of Dollars!

From the Desk of San Diego Trust and Estate Planning Lawyer Kristina R. Hess….

On July 27, 2010, I held our first “Truth About Estate Planning For Foreign Nationals” seminar/workshop in our office boardroom.

Here are a few of the highlights:

U.S. Citizens and U.S. Residents are all subject to the Estate Tax… so if your husband or wife, mother or father died and they were domiciled in the United States… then, their estate is subject to Estate Tax.

The first question you have to ask of a non-citizen is: Are they domiciled in the U.S. or are they domiciled in another country?

How the IRS determines domicile is NOT the same process or test that it applies to determinations for income tax purposes; nor is the test the same as the one used for determining legal residency status for immigration.  The  test relating to estate taxes is an intent test.  Did the individual have “no definite present intention of leaving?”  And, the corollary to that is did the individual have a present intention of staying in the U.S.?  If so, then chances are the IRS will consider them to be domiciled in the U.S.  The IRS examines a host of factors in making this determination:

Some but not all of these factors are —

  • Duration of stay in U.S.; frequency of travel abroad
  • Size, cost and nature of home and whether individual owns or rents
  • Location of expensive possessions
  • Age of children and location of schools
  • Location of business; church, club memberships
  • Declaration of residence on visa, wills, deeds, trust, etc. –
  • Motivation (holding a green card is not dispositive)

As many of you may  know or may have read about in the paper or on-line right now there is NO ESTATE TAX!  So, if your loved one dies this year, there is no estate tax.   But, there is capital gains tax this year.  And, you may not know that with a properly designed living trust, you can avoid paying capital gains this year if you or your spouse or parent dies! 

However, next year (2011) the capital gains issue will disappear and the estate tax reappears.  In 2011 if your loved one dies, all of their assets over $1 million will be subject to a tax of 55%.  So, if you or your loved one owns assets (home, rental home, business interest, life insurance, personal property, boats, yachts, fine jewelry, cars, retirement accounts, you name it if you own it and it’s worth something — it’s included!) over $1 million — then over half of those assets over that threshold amount will go to the government (the big fat tax man).

If you ARE NOT (or your loved one) is not domiciled in the U.S. but is domiciled abroad but owns assets that are situated in the U.S. (e.g. real estate, business) then, any assets over $60,000 will be taxed!

Are you listening??

Did you know that up unto a certain level, that the U.S. Estate Tax is voluntary?  Yes, with a little estate planning you can minimize the amount of tax that you pay — legally and ethically.

I know very few people who would voluntarily agree to give the government over half of their assets that they have spent a lifetime — many years of hard work, sweat equity, and sacrifice building — to the government!  Why?

Perhaps you are a son or daughter of a non-citizen and you are asking yourself, do I want to lose over half of my inheritance to Uncle Sam?

Surely there are better things you could do with your parents assets then liquidate them to pay the government!

My people perish for lack of knowledge!

Wake up and see that with a little planning you can keep more of your hard earned assets in the family… or, you can wisely utilize insurance to pay pennies on the dollar for a tax bill.

The moral of this post is that foreign nationals are subject to US Estate Tax (some treaties with foreign countries can help prevent a double tax)… AND

Did you know that if your spouse dies and you are not a U.S. citizen that you are not entitled to the unlimited marital deduction (a tax free pass for U.S. citizen spouses)…. unless the assets are held in a QDOT trust (Qualified domestic trust)??

These are just a couple of the highlights from the truth seminar!

Did you miss it?  Call our office and ask for a Family Wealth Planning Session where I can go over your particular situation with no pressure and no obligation.  We offer 2 free sessions per month to our blog readers!

Call Sarah Kerr at 858-461-6844 at KR Hess Law and see if she can fit you in September!

Create Legacies that Last!

Your local Del Mar, Carmel Valley, Solana Beach, Encinitas, Carlsbad, San Diego

Estate Planning Lawyer,

Kristina 🙂