Planning for international clients takes special care. This blog focuses on the estate taxation of the people involved based on their citizenship. In next week’s blog I will examine foreign assets.
A person who is a citizen of the United States gets an exclusion of $5.25 million this year ($5.34 million in 2014). The same exclusion applies to someone who is not a U.S. citizen, but is a U.S. resident. In both cases, the person’s worldwide assets are subject to estate taxation. So, even their assets in another country will be subject to estate taxation. Of course, an estate tax treaty between the two countries could alter that result.
Thus, for most citizens or resident non-citizens, estate tax is not the most important issue, just like it is not the most important issue for most U.S. citizens.
Someone who is neither a citizen nor resident of the United States, whom the Internal Revenue Code refers to as a “non-resident alien,” is taxed only on his or her U.S.-situs assets, such as real estate. However, they only get an exclusion of $60,000. Again, an estate tax treaty could alter that result.
Thus, estate tax can become a very significant issue for non-resident aliens, due to the small exclusion allowed.
Those wishing to get a marital deduction when leaving assets to a non-citizen spouse must utilize a Qualified Domestic Trust or “QDOT.” This is not an issue for those whose estate is below the exclusion allowed. But, for non-resident aliens with over $60,000 in U.S.-situs assets and citizens and residents with over $5.25 million in assets, a QDOT is essential to obtain a marital deduction.
Next week I’ll examine how to handle non-tax international issues, such as assets overseas.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555