Non-Residents and Estate Tax

A Citizen Non-Citizen is normally taxed for estate tax function as a United States Resident, except for marital deduction issues.

Who is a Citizen for Estate Tax Purposes? A U.S. estate tax functions is not the like the meaning of “resident” for U.S. earnings tax functions. For U.S. estate tax functions, a resident decedent is somebody who, at the time of death, was domiciled in the US. An individual gets a domicile by living at an area, for even a quick duration, without any definite present intent of leaving. Residence without the requisite intent to remain indefinitely does not be enough 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 friends and family and crucial individual possessions, the center of the person’s financial and business interests, and the size and place of the person’s home.
Lifetime Gifts to a Non-Citizen Non-Resident or Homeowner Non-Citizen spouse are restricted under Code section 2523(i). There is no limitless marital deduction, but there is an expanded annual exclusion, currently $139,000 (2012 ). If spouses have significantly various values in their estates, while it may be an excellent idea to try to equalize them in order to accomplish the Bypass Planning. The more property you can allocate to the estate of the Non-Resident Non-Citizen or Homeowner Non-Citizen partner, the less property will be subjected to the estate tax marital reduction guidelines described listed below for gifts to a non-citizen partner. Generally 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 gotten from the decedent to such a trust before the due date for the Estate Tax return (706 ), or if the partner ends up being an US resident prior to that time, then the marital deduction can be readily available in that circumstance as well.

Qualified Domestic Trust (“QDOT”). A certified domestic trust (QDOT) is a trust that satisfies the following requirements:
( 1) The trust instrument must require that at least one trustee (the “U.S. trustee”) of the trust be a specific citizen of the United States or a domestic corporation. For this purpose, a domestic corporation is defined as a corporation that is produced 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 must supply that no circulation (other than a circulation of earnings) may be made from the trust unless a trustee who is a specific resident of the Unite States or a domestic corporation has the right to keep from the distribution the estate tax imposed on the circulation.
( 3) The trust should satisfy the requirements of guidelines to make sure the collection of any estate tax imposed on the trust.

( 4) The decedent’s administrator must choose that the trust be treated as a QDOT.
Also, if the worth of the trust as finally determined for estate tax purposes goes beyond $2MM, the trust must also have certain security arrangements. Either the United States trustee need to be a bank, or the trustee offers a strictly defined 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 functions of identifying whether these security arrangements are required.

Consider Where Assets Should be Owned. Although a QDOT will be available for the estate of the US resident decedent to claim a marital deduction for a non-citizen spouse, consider that the trust will need to have a United States trustee which 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 concern with having to claim the marital reduction at death.