Non-Residents and Estate Tax


A Citizen Non-Citizen is normally taxed for estate tax purpose as an US Citizen, except for marital deduction issues.

Who is a Citizen for Estate Tax Purposes? A U.S. estate tax functions is not the same as the definition of “resident” for U.S. income tax functions. For U.S. estate tax functions, a resident decedent is someone who, at the time of death, was domiciled in the US. An individual obtains a residence by living at a location, for even a short duration, with no definite present intent of leaving. House without the requisite intent to remain forever does not be adequate to make up residence. An objective to change residence is ineffective unless accompanied by a real elimination from the jurisdiction. The IRS will analyze the period of the individual’s remain in the United States, the location of friends and family and important personal possessions, the center of the individual’s financial and company interests, and the size and location of the individual’s home.
Lifetime Presents to a Non-Citizen Non-Resident or Resident Non-Citizen spouse are limited under Code section 2523(i). There is no limitless marital reduction, but there is an expanded yearly exclusion, currently $139,000 (2012 ). If partners have considerably different values in their estates, while it may be a good idea to attempt to equalize them in order to accomplish the Bypass Planning. The more property you can assign to the estate of the Non-Resident Non-Citizen or Local Non-Citizen spouse, the less property will go through the estate tax marital deduction rules explained listed below for gifts to a non-citizen partner. Usually the marital reduction will just be available for transfers to a non-citizen partner if the transfer is to a qualified domestic trust. Nevertheless, 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 spouse becomes an US resident prior to that time, then the marital deduction can be available in that circumstance as well.

Qualified Domestic Trust (“QDOT”). A certified domestic trust (QDOT) is a trust that meets the following requirements:
( 1) The trust instrument need to need that at least one trustee (the “U.S. trustee”) of the trust be a specific resident of the United States or a domestic corporation. For this purpose, a domestic corporation is defined as a corporation that is developed 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 must supply that no distribution (other than a circulation of earnings) might be made from the trust unless a trustee who is an individual citizen of the Unite States or a domestic corporation deserves to withhold from the circulation the estate tax troubled the distribution.
( 3) The trust needs to fulfill the requirements of guidelines to guarantee the collection of any estate tax enforced on the trust.

( 4) The decedent’s administrator should choose that the trust be treated as a QDOT.
Also, if the value of the trust as lastly figured out for estate tax purposes goes beyond $2MM, the trust needs to also have particular security plans. Either the United States trustee should be a bank, or the trustee supplies 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 purposes of figuring out whether these security arrangements are required.

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