Non-Residents and Estate Tax

A Resident Non-Citizen is typically taxed for estate tax function as an US Citizen, except for marital reduction issues.

Who is a Citizen for Estate Tax Purposes? A U.S. estate tax purposes is not the like the definition of “resident” for U.S. earnings tax purposes. For U.S. estate tax purposes, a resident decedent is someone who, at the time of death, was domiciled in the United States. A person gets a domicile by living at a location, for even a short period, without any guaranteed present intent of leaving. Residence without the requisite intent to stay indefinitely does not suffice to constitute residence. An intention to alter domicile is ineffective unless accompanied by a real elimination from the jurisdiction. The Internal Revenue Service will examine the period of the person’s stay in the United States, the area of household and buddies and crucial personal valuables, the center of the individual’s financial and service interests, and the size and place of the person’s home.
Lifetime Presents to a Non-Citizen Non-Resident or Resident Non-Citizen spouse are limited under Code area 2523(i). There is no unrestricted marital reduction, however there is a broadened yearly exemption, presently $139,000 (2012 ). If spouses have substantially various worths in their estates, while it may be a good concept to attempt to adjust them in order to accomplish the Bypass Planning. The more property you can allocate to the estate of the Non-Resident Non-Citizen or Citizen 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. Usually the marital reduction will only be readily available for transfers to a non-citizen spouse if the transfer is to a qualified domestic trust. If the partner transfers property received from the decedent to such a trust before the due date for the Estate Tax return (706 ), or if the spouse becomes an US citizen prior to that time, then the marital reduction can be readily available in that circumstance as well.

Qualified Domestic Trust (“QDOT”). A qualified domestic trust (QDOT) is a trust that meets the list below requirements:
( 1) The trust instrument must require that a minimum of one trustee (the “U.S. trustee”) of the trust be an individual person of the United States or a domestic corporation. For this function, 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 (other than a distribution of income) might be made from the trust unless a trustee who is a specific person of the Unite States or a domestic corporation can keep from the distribution the estate tax troubled the distribution.
( 3) The trust should meet the requirements of guidelines to guarantee the collection of any estate tax enforced on the trust.

( 4) The decedent’s executor should elect that the trust be dealt with as a QDOT.
Also, if the value of the trust as finally identified for estate tax purposes surpasses $2MM, the trust needs to also have particular security arrangements. Either the United States trustee must 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 figuring out whether these security arrangements are required.

Consider Where Assets Must be Owned. Even though a QDOT will be available for the estate of the US resident decedent to claim a marital deduction for a non-citizen spouse, think about that the trust will need to have a United States trustee and that bond may be due. If there are possessions that the spouse will wish to control himself or herself without the trustee, consider methods to get those into the spouse’s name throughout life so there is no problem with needing to declare the marital deduction at death.