Non-Residents and Estate Tax

A Homeowner Non-Citizen is typically taxed for estate tax function as an US Resident, other than for marital deduction problems.

Who is a Resident for Estate Tax Purposes? A U.S. estate tax purposes is not the like the definition of “resident” for U.S. income tax functions. For U.S. estate tax purposes, a resident decedent is somebody who, at the time of death, was domiciled in the United States. A person obtains a residence by living at an area, for even a brief duration, without any certain present objective of leaving. Residence without the requisite intention to stay forever does not be enough to constitute domicile. An intention to change residence is ineffective unless accompanied by an actual removal from the jurisdiction. The IRS will take a look at the duration of the person’s remain in the United States, the place of friends and family and important individual valuables, the center of the individual’s monetary and business interests, and the size and location of the individual’s home.
Lifetime Presents to a Non-Citizen Non-Resident or Resident Non-Citizen partner are limited under Code section 2523(i). There is no limitless marital reduction, however there is an expanded yearly exclusion, presently $139,000 (2012 ). For that reason, if spouses have substantially various values in their estates, while it might be a good idea to try to match them in order to achieve the Bypass Planning. The more property you can designate to the estate of the Non-Resident Non-Citizen or Homeowner Non-Citizen partner, the less property will go through the estate tax marital reduction rules explained listed below for gifts to a non-citizen partner. Typically the marital reduction will only be readily available for transfers to a non-citizen partner if the transfer is to a certified domestic trust. If the partner transfers property received from the decedent to such a trust prior to the due date for the Estate Tax return (706 ), or if the partner becomes a United States citizen prior to that time, then the marital reduction can be readily available in that scenario as well.

Qualified Domestic Trust (“QDOT”). A qualified domestic trust (QDOT) is a trust that satisfies the following requirements:
( 1) The trust instrument should require that a minimum of one trustee (the “U.S. trustee”) of the trust be a private person of the United States or a domestic corporation. For this function, a domestic corporation is specified as a corporation that is produced or organized under the laws of the United States or under the laws of any state or the District of Columbia.

( 2) The trust instrument need to offer that no distribution (besides a distribution of income) might be made from the trust unless a trustee who is a private person of the Unite States or a domestic corporation deserves to keep from the circulation the estate tax troubled the distribution.
( 3) The trust should fulfill the requirements of guidelines to ensure the collection of any estate tax imposed on the trust.

( 4) The decedent’s administrator should elect that the trust be treated as a QDOT.
Also, if the worth of the trust as lastly determined for estate tax purposes goes beyond $2MM, the trust must also have particular security plans. Either the United States trustee need to be a bank, or the trustee offers a strictly specified 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 determining whether these security arrangements are required.

Consider Where Assets Must be Owned. Although a QDOT will be readily available for the estate of the US resident decedent to claim a marital deduction for a non-citizen partner, consider that the trust will have to have an US trustee which bond may be due. If there are properties that the spouse will wish to control himself or herself without the trustee, consider methods to get those into the partner’s name during life so there is no issue with having to declare the marital reduction at death.