Navigating Estate and Gift Tax Treaties, U.S. Situs Assets, and Allowable Deductions

Description

Estates of U.S. residents and nonresident aliens are valued as of the date of death or, as an alternative, the date six months after. Determining the taxable estate will consider any available exemptions and certain allowable deductions. For high net worth clients based within the U.S. or those acquiring citizenship or permanent residency in multiple countries, counsel and tax advisers should recognize estate planning issues, applicable tax treaties, and available tax and estate planning options.

Generally, the first step is for counsel to establish whether a new client is a U.S. citizen or a legal permanent resident. U.S. tax law provides rules for determining whether a person is a nonresident and the situs of assets. Unlike U.S. residents and citizens, the nonresident alien exemption is substantially lower--$60,000 compared with a resident's exemption of $12,060,000 (2022)--making planning critical for these taxpayers.

Tax treaties may entail provisions that overrule the Code and provide some tax relief and benefits for nonresidents but are not always intuitive. However, the differences raise issues not encountered with the administration of the estates of U.S citizens and domiciliaries.

Counsel must understand the practical issues in obtaining original or ancillary probate or administration, potential conflicts between civil law of the nonresident's domicile and U.S. inheritance laws, U.S. treatment of marital property regimes, U.S. estate tax situs rules, and estate tax treaties and collection procedures.

Listen as our experienced panel discusses the application of U.S. tax laws to assets owned by green card holders and nonresidents, reporting requirements, Form 706-NA, assets included in the gross estate, available deductions, and the effect of death tax treaties.