Non-Citizens — Estate, Gift and Generation-Skipping Taxation (Portfolio 837)


Michael Heimos


Michael A Heimos PC

At a glance

I. Introduction
II. Constitutions and the Legislative Power to Tax Non-Citizens
III. Determining Citizenship, Residency and Domicile
IV. Determining Property Situs
V. Special Rules Regarding Former U.S. Citizens and Long-Term U.S. Residents
VI. Transfer Taxation and Nonresident Non-Citizens
VII. Transfer Taxation and Resident Non-Citizens
VIII. Transfer Tax Planning for Nonresident Non-Citizens
IX. Non-Citizens' Transfer Tax Returns and Other Filings
X. Important Non-Tax Matters for Non-Citizens


The Bloomberg Tax Portfolio, Non-Citizens — Estate, Gift and Generation-Skipping Taxation, No. 837, explains the federal taxation of property transfers made by U.S. resident non-citizens and nonresident non-citizens and their respective estates. The primary focus is on the rules applicable to nonresident non-citizens and transfers between a nonresident non-citizen or his or her estate and another nonresident non-citizen. Because other Tax Management Portfolios do so, this Portfolio does not comprehensively discuss the variations resulting from the application of the U.S. bilateral transfer tax treaties or the rules concerning transfers from U.S. citizens and non-U.S. citizens and their estates to non-U.S. citizen spouses. Although these topics are discussed in brief herein, for more information about these topics, readers are referred to other Bloomberg Tax Portfolios.

As to potential planning techniques for nonresident non-citizens, avoidance of U.S. transfer taxes can often be achieved through relatively simple advance planning. Usually this occurs by utilizing a foreign holding company, a foreign trust, a foreign partnership, a domestic or foreign life insurance or annuity contract, or a tier or other combination of the foregoing structures to hold U.S.-situs assets and to provide the means for their transfer to a subsequent generation or generations.

Congress taxes transfers of properties made by U.S. resident non-citizens and their estates in the same fashion as it taxes transfers of properties made by U.S. citizens and their estates. In contrast, Congress taxes transfers of properties by nonresident non-citizens and their estates only if the properties transferred are located within the United States. Because of this distinction, the most important transfer tax analyses are the determination of U.S.-residency status and property situs. Another important distinction is that, contrary to a transfer of property included in the estate made by a U.S. citizen's or non-citizen's estate to a U.S. citizen spouse, a transfer of estate-included property from a U.S. citizen's or non-citizen's estate to a non-citizen spouse is subject to estate tax. However, in such cases, the estate tax may be deferred if the transfer is made to a “qualified domestic trust,” either directly or by the surviving spouse within a defined period after the decedent's death, or if the surviving spouse becomes a U.S. citizen. Transfers subject to federal transfer taxation may additionally be subject to U.S. state transfer taxation.

The Portfolio begins with an exposition of Congress's constitutional powers to tax non-citizens' inter vivos and testamentary transfers. Next, the Portfolio discusses current substantive transfer tax rules as they apply to non-citizens, focusing first upon the threshold rules concerning residency status and property situs and then addressing deductions, credits, filing requirements, etc. The Portfolio also addresses in detail the peculiar problems and opportunities that certain expatriated former U.S. citizens, and other special-status persons, encounter under the Code. The discussions of common and novel planning techniques in the text and the several useful checklists, tables, and sample documents included in the Worksheets should prove useful to practitioners.

This Portfolio may be cited as Heimos, 837 T.M., Non-Citizens — Estate, Gift and Generation-Skipping Taxation.

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