Alien Concepts: Navigating the Labyrinth of Rules Applying to Gifts and Estates of Non-U.S. Citizens

Basha, Leigh-Alexandra; Brown, Cal
January 2008
Journal of Financial Planning;Jan2008, Vol. 21 Issue 1, p62
Academic Journal
� This "quick-reference guide" examines some of the rules dealing with gift and estate tax when one or both of the clients are non-U.S. citizens. � Whenever a client is identified as a non-citizen, the financial planner has immediate tax and estate planning issues to consider. The first task is to determine whether the client�or the spouse, if applicable�is a resident alien or a non-resident alien. � Once citizenship and domicile status have been determined, the planner must consider various scenarios regarding wealth transfers, both inter vivos and post-mortem. The key question is, are assets flowing to a U.S. citizen or to an alien? � Two important details to verify are whether a treaty exists between the United States and the country where the alien is a citizen or resident, and whether there are any important rules regarding gift and estate taxes. � The marital annual exclusion amount is only $125,000 indexed for inflation ($ 128,000 for 2008) for gifts to alien spouses. This should be fully used to equalize estates or to transfer assets to the non-citizen spouse, especially when death may be imminent. � No unlimited marital deduction is available to a surviving alien spouse, unless a qualified domestic trust (QDOT) is used. A QDOT results in tax deferral, not tax avoidance. The executor must make a QDOT election on a timely filed IRS Form 706. � Certain assets are excluded from the gross estate of non-resident aliens, but the applicable exclusion amount for non-resident aliens is only $60,000 (2008). � Jointly held property may be problematic; separate ownership should be considered.


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