ESTATE & GIFT TAXATION


The estate tax is a tax on the transfer of property at death. U.S. citizens are subject to U.S. estate taxation, regardless of whether they live in the United States or abroad.

Similarly, someone who is not a U.S. citizen, but is a resident of the United States, is subject to U.S. estate taxation on his worldwide property.

Even individuals who are not U.S. citizens and are not resident in the United States may be subject to U.S. estate taxation if they have U.S.-situated assets.

The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return.

Even though most situations do not result in an estate or gift tax liability, filing an estate or gift tax return might still be required. This is especially the case in international situations.

U.S. TAXATION OF FOREIGN ESTATES

The estate of an individual who, at the time of his death, was not a U.S. citizen and not a resident of the United States may still be subject to U.S. federal estate taxation with respect to his U.S.-situated assets. U.S.-situated assets include American real estate, tangible personal property, and securities of U.S. companies.

The estate tax concept of residency differs from the income tax concept of residency. In other words, someone who is not a U.S. citizen and not a resident of the United States for federal income tax purposes can still be considered a resident for estate tax purposes. The opposite is also possible. The tax code provides that a resident decedent ‘is a decedent who, at the time of his death, had his domicile in the United States’. Domicile is determined based on physical presence and intent.

Even though most situations do not result in an estate or gift tax liability, filing an estate or gift tax return might still be required. This is especially the case in international situations.

ESTATE TAXATION OF U.S. CITIZEN WITH A FOREIGN SPOUSE

U.S. citizens are subject to U.S. estate and gift tax, no matter whether they reside in the United States or abroad, and no matter whether their property is located in the United States or elsewhere. Unlike many other countries, the U.S. generally does not impose a tax on the individual receiving a gift or bequest, but rather the individual or estate making the gift or bequest.

A gift or bequest received by the foreign spouse of a U.S. citizen is subject to U.S. estate and gift taxation. Relatively simple advance planning techniques can often help to mitigate U.S. estate and gift tax.

ESTATE AND GIFT TAX RULES FOR NON-AMERICANS RESIDENT IN THE UNITED STATES

Just like U.S. citizens, individuals resident in the United States for estate and gift tax purposes are subject to tax on their worldwide property. The residency concept for estate tax purposes is determined based on physical presence and intent. The concept is therefore much more subjective as compared to the residency concept for income tax purposes.

Avoidance of U.S. estate and gift tax can often be achieved through relatively simple advance planning techniques.

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