A Citizen Non-Citizen is normally taxed for estate tax purpose as an US Resident, other than for marital reduction problems.
Who is a Citizen for Estate Tax Purposes? A U.S. estate tax functions is not the like the meaning of “resident” for U.S. earnings tax functions. For U.S. estate tax functions, a resident decedent is someone who, at the time of death, was domiciled in the US. A person acquires a residence by living at a location, for even a short duration, with no certain present objective of leaving. Home without the requisite intent to stay forever does not be sufficient to make up 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 individual’s remain in the United States, the place of family and friends and important individual valuables, the center of the individual’s financial and service interests, and the size and location of the person’s home.
Lifetime Gifts to a Non-Citizen Non-Resident or Homeowner Non-Citizen partner are limited under Code area 2523(i). There is no unlimited marital deduction, however there is a broadened annual exclusion, currently $139,000 (2012 ). For that reason, if partners have considerably different worths in their estates, while it may be a great idea to attempt 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 Resident Non-Citizen spouse, the less property will be subjected to the estate tax marital reduction rules explained below for presents to a non-citizen partner. Usually the marital reduction will only be offered for transfers to a non-citizen spouse if the transfer is to a qualified 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 resident before that time, then the marital deduction 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 must require that at least one trustee (the “U.S. trustee”) of the trust be a specific person of the United States or a domestic corporation. For this function, a domestic corporation is defined as a corporation that is created or arranged 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 supply that no circulation (besides a circulation 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 withhold from the circulation the estate tax imposed on the distribution.
( 3) The trust needs to fulfill the requirements of policies to make sure the collection of any estate tax imposed on the trust.
( 4) The decedent’s executor should elect that the trust be treated as a QDOT.
Also, if the worth of the trust as lastly figured out for estate tax functions surpasses $2MM, the trust needs to also have specific security plans. Either the US trustee should be a bank, or the trustee supplies 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 purposes of determining whether these security arrangements are required.
Consider Where Possessions Must be Owned. Even though a QDOT will be offered for the estate of the United States resident decedent to declare a marital deduction for a non-citizen spouse, consider that the trust will need to have an US trustee which bond might be due. If there are possessions that the partner will wish to manage himself or herself without the trustee, consider methods to get those into the partner’s name throughout life so there is no problem with needing to declare the marital deduction at death.