Non-Resident Alien Inheritance and Gift Laws: International Estate Planning for Irvine and OC
Non-Resident Alien Inheritance and Gift Laws
Complex estate and gift tax rules apply to your estate planning if you are not a U.S. citizen and you own assets in the United States.
Definition of Non-Resident Aliens
Irvine and much of Orange County are home to many first generation U.S. citizens with family members that are resident aliens and/or nonresident aliens. Several complications arise when a U.S. Citizen either receives an inheritance or gift from a non-resident alien. A non-resident alien is defined as any individual who is not a US citizen or resident alien. For transfer tax purposes, residence is defined by domicile, so a person is a non-resident alien when the person is not domiciled in the US. Non-resident aliens are not considered US persons for estate, gift and GST tax purposes. Non-resident aliens for estate and gift tax purposes do not receive the same gift and estate tax exemption as US residents. Non-resident aliens are not subject to taxation on worldwide assets; instead their US estates include only those assets deemed situated in the US.
Taxes on Gifts or Inheritance from Non-Resident Aliens
Unlike US citizens and residents, non-resident alien individuals do not receive a lifetime gift tax exemption, but are entitled to use of the annual exclusion amount. Thus, every transfer of US situs property by a non-resident alien in excess of the gift tax annual exclusion ($14,000 in 2014) is subject to gift tax. Nonresident aliens must generally pay gift tax on transfers of real property and tangible property located in the US. Intangible property, including stocks and bonds, is generally exempt. The estate of a nonresident alien receives an estate tax exemption of $60,000. Some US estate tax treaties allow a higher amount. Effectively, this means that US estate tax will capture many estates of nonresident aliens who die owning US situs assets.
Reporting Gifts or Inheritance from Non-Resident Aliens
US citizens or residents (as defined for income tax purposes) must report gifts or bequests from foreign sources. Gifts from foreign corporations or foreign partnerships in excess of $15,102 (adjusted for inflation), in the aggregate, are reported on Form 3520, Part IV. The IRS also requires gifts from foreign individuals or foreign estates to be reported once the aggregate gifts exceed $100,000 on Form 3520, Part IV. The IRS can impose substantial penalties for failure to report such gifts or bequests.
Taxes for United States Citizens or Resident Aliens
US law imposes income taxes on US persons — defined as US citizens and US residents — with respect to their worldwide income and imposes transfer taxes on their worldwide assets. However, income tax law determines residence differently than the US transfer tax (gifts, estate and GST tax) law determines residence. Even if the non-US citizens have their “green cards”, they may still be subject to the extremely high gift and estate tax rate that non-resident aliens pay – a person can be a US resident for income tax purposes but a “non-domiciliary” for gift and estate tax purposes.
Orange County International Estate Planning Attorneys
If you or a loved one is a non-resident alien with inheritance or gift questions, contact John Wong, Orange County International Estate Planning Attorney at Modern Wealth Law.
John Wong advises on all aspects of estate planning, probate, asset protection and trust administration. He believes that estate planning is about planning for life; while having protections in place should the unexpected occur.
