A Citizen Non-Citizen is usually taxed for estate tax function as a United States Person, other than for marital deduction problems.
Who is a Citizen for Estate Tax Purposes? A U.S. estate tax functions is not the very same as the definition of “resident” for U.S. income tax purposes. For U.S. estate tax functions, a resident decedent is someone who, at the time of death, was domiciled in the US. An individual gets a domicile by living at a location, for even a quick period, with no guaranteed present objective of leaving. Home without the requisite intent to stay forever does not be sufficient to constitute domicile. An objective to change residence is ineffective unless accompanied by a real elimination from the jurisdiction. The IRS will analyze the period of the person’s remain in the United States, the place of friends and family and important individual belongings, the center of the person’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 area 2523(i). There is no endless marital deduction, but there is a broadened yearly exclusion, currently $139,000 (2012 ). For that reason, if spouses have significantly different values in their estates, while it might be a great concept to try to adjust them in order to accomplish the Bypass Planning. The more property you can assign to the estate of the Non-Resident Non-Citizen or Homeowner Non-Citizen partner, the less property will be subjected to the estate tax marital reduction guidelines explained below for presents to a non-citizen partner. Generally the marital deduction will only be readily available for transfers to a non-citizen partner if the transfer is to a qualified domestic trust. However, if the spouse 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 a United States citizen before that time, then the marital reduction can be available in that circumstance as well.
Qualified Domestic Trust (“QDOT”). A qualified domestic trust (QDOT) is a trust that fulfills the following requirements:
( 1) The trust instrument need to require that at least one trustee (the “U.S. trustee”) of the trust be a specific citizen of the United States or a domestic corporation. For this purpose, 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 must provide that no distribution (other than a circulation of income) may be made from the trust unless a trustee who is a private citizen of the Unite States or a domestic corporation can withhold from the distribution the estate tax enforced on the circulation.
( 3) The trust must satisfy the requirements of guidelines to make sure the collection of any estate tax imposed on the trust.
( 4) The decedent’s administrator must elect that the trust be dealt with as a QDOT.
Also, if the value of the trust as lastly identified for estate tax functions exceeds $2MM, the trust must likewise have certain security plans. Either the US trustee must 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 Should be Owned. Although a QDOT will be readily available for the estate of the United States resident decedent to claim a marital deduction for a non-citizen spouse, think about that the trust will need to have an US trustee and that bond may be due. If there are assets that the spouse will desire to manage himself or herself without the trustee, consider ways to get those into the partner’s name throughout life so there is no concern with having to claim the marital deduction at death.