Each year, the number of resident aliens in the District of Columbia swells as flocks of individuals, diplomats, and business professionals come to Washington, D.C. for either shortterm assignments, as long term residents, or as part of a plan to one day become a U.S. citizen. Through globalization, the world has become smaller and more interconnected than ever and more and more resident aliens are making Washington, D.C. their home. Whether these individuals came here in search of a better life, to complete their education, to advance their careers or to get married or raise a family, increasingly individuals have assets inside and outside of the United State.
When individuals decide to move here from a foreign country their legal and financial obligations, especially with respect to estate planning, can become more complex depending on the location of their assets. It is then certainly no surprise that different rules regarding citizenship, residency requirements, property rights and taxes may apply and may make estate planning more complicated.
A Little Background:
In 2016, US citizens and non-US citizens domiciled in the United States have enjoyed favorable tax treatment and have been able to take advantage of estate and gift taxation exemptions. Currently, the applicable maximum tax rate is 40%, with an exemption amount of $5,450,000 adjusted for inflation. However, for individual who are not United States citizens and who are not domiciled in the United State, this tax landscape if very different. For these individuals, the maximum tax rate is also 40%, but instead of a $5,450,000 exemption they are limited to $60,000 exemption, which is only available for transfers at death.
How do estate tax and gift tax planning differ for non-US citizen clients?
To answer this question we must first determine if the non-US citizen is a US domiciliary or non-US domiciliary. Typically, individuals who are WE citizen or non-citizens who are domicile in the United States are subject to United States transfer taxes on all of their worldwide assets. This is regardless of where the assets may be physically located.
However, for individuals who aren’t United State citizens and are non-domicile in the United States the analysis is more complicated. Under current estate tax and gift tax rules for determining domicile, an individual acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of later leaving. So for individuals taking a job in the United States that may be enough to establish domicile.
However, in contrast to the more objective income tax residency test prescribed by the internal revenue service, the simple act of living in the United States for a certain number of days is not sufficient to establish “domicile” under current transfer tax rules. In addition, an individual who is a United States resident for immigration purposes is not ipso facto treated as a domicile in the United States for transfer tax purposes. Thus the analysis can get a little confusing.
Traditionally, visa status and the length of time an individual has lived in the United States have been significant factors in determining domicile; they are not the only factors in the internal revenue service’s analysis. Other factors the IRS takes into consideration include the location the individual’s business interests, the location of any valuable art or tangible personal property the individual may own, the location of other residences the individual may own, as well as the domicile of their spouse, family and friends, and in some cases, where the individual intends to be buried.
For more information regarding Estate Planing for Non-Resident Aliens Contact Antonoplos & Associates, 202-803-5676.