Tax Planning for Non-Resident Aliens
McCarthy Fingar’s Taxation and Trusts & Estates lawyers have substantial expertise in tax planning for Non-Resident Aliens (“NRAs”). NRAs are individuals who are neither U.S. residents nor U.S. citizens (“NRAs”). Planning for NRAs presents tax issues that do not apply to residents or citizens of the U.S.
The Limited $60,000 Transfer Tax Exemption for NRAs
A citizen or resident (“U.S. person”) is entitled to a $11.58 million lifetime exemption for both Federal gift and estate taxes. This means that a U.S. person can make a gift of $11.58 million to any one or more individuals without triggering a gift tax. Similarly, a U.S. person can die with assets of $11.58 million without triggering any Federal estate tax. On the other hand, an NRA is not entitled to the lifetime gift tax exemption (although the annual gift tax exclusion of $15,000 per done is available to NRAs); and the estate tax exemption for an NRA is only $60,000.
The Scope of Assets Subject to Gift/Estate Tax for NRAs
Another major difference in the transfer tax rules for U.S. persons, as opposed to NRAs, is that a U.S. person is taxed on his or her worldwide assets. It does not matter where the assets are located. An NRA, however, is subject to transfer taxes only on assets “deemed” to be situated in the U.S. at the time of transfer. The rules for determining whether assets are deemed situated in the U.S. are different for gift tax purposes than they are for estate tax purposes. For gift tax purposes, assets situated in the U.S. include real estate and tangible personal property, but not intangible property. Tangible property would include such items as furniture, artwork, automobiles and cash (currency). Intangible property would include such things as stock in a corporation, and interests in partnerships and mutual funds. Accordingly, an NRA may transfer foreign real estate, tangible property located outside the U.S., and stock in foreign or U.S. corporations and partnerships without triggering a U.S. gift tax. For estate tax purposes, however, items that are situated in the U.S. include U.S. real estate, tangible property located in the U.S., and interests in U.S. corporations and partnerships. Accordingly, if an NRA dies while owning an interest in a U.S. corporation or partnership, that interest will be subject to the estate tax, even thought it would not have been subject to gift tax had the NRA gifted the property prior to death. The situs and registration of title of such assets provides important planning opportunities for our clients.
McCarthy Fingar’s Approach in Representing Non-Resident Aliens
McCarthy Fingar’s Taxation and Trusts & Estates lawyers often represent NRAs in developing and implementing tax avoidance strategies. While the within page provides a brief synopsis of some of the tax issues, it is a complicated area. Careful planning is essential.