OLA 1711 T 1008 Your Guide to Gift and Estate Planning for Non-U.S. Citizens
2 This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Clients and other interested parties to whom this material is promoted, marketed, or recommended should consult with and rely solely on their own independent advisors regarding their particular situation and the concepts presented here.
Transfer Tax Planning for Non-U.S. Citizens Non-U.S. citizens face different rules Differences could result in substantial and possibly higher transfer taxes than for U.S. citizens 3
Are You Affected? Resident and Nonresident Aliens owning U.S.-situated property Married couples with a non-u.s. citizen spouse 4
Not All Foreign Nationals Are the Same Taxed differently based on residency status Two classifications: Resident Alien (RA) Nonresident Alien (NRA) 5
Your Residency Matters Residency determined by location of individual s domicile Domicile is location where someone lives and intends to reside permanently 6
Transfer Tax Overview Transfer taxes affecting U.S. citizens and resident aliens: Gift taxes Estate taxes Generation-skipping transfer taxes 7
Gift Taxes for U.S. Citizens and Resident Aliens When does the tax apply? Tax levied on gratuitous transfer of property to third party Gift must be accepted by recipient to be taxable Donor is liable for tax Annual exclusion gifts of assets or cash up to $12,000 for 2008 to each individual are generally not subject to gift taxes 8
Lifetime Exemption Amounts and Gift Tax Rates Year Applicable Gift Exemption Amount Maximum Gift Tax Rate 2008 through 2009 $1 million 45% 2010 $1 million 35% 2011 or later $1 million 55% 9
Estate Taxes for U.S. Citizens and Resident Aliens How does the estate tax work? Assessed when assets are transferred at death Applies to transfer of all worldwide assets Tax is due within nine months of death Estate is liable for any taxes due 10
Lifetime Exemption Amounts and Estate Tax Rates for U.S. Citizens and Resident Aliens Year Estate Tax Exemption Amount Maximum Estate Tax Rate 2008 $2 million 45% 2009 $3.5 million 45% 2010 Unlimited 0% 2011 or later $1 million 55% 11
Transfers to U.S. Citizen Spouse Unlimited Marital Deduction Permits unlimited amount of assets to be transferred between spouses free of gift or estate taxes Only available if recipient spouse is U.S. citizen 12
Resident Alien Similar to U.S. Citizen Treated same as U.S. citizen for gift and estate tax purposes Unlimited marital deduction depends upon spouse s citizenship 13
Non-U.S. Citizen Spouses Treated Differently Gifts or bequests to non-u.s. citizen spouse treated differently even if person making transfer is U.S. citizen Unlimited marital estate tax deduction generally disallowed unless transferred to Qualified Domestic Trust (QDOT) In 2008, $128,000 annual exclusion allowed for gifts to non-u.s. citizen spouse 14
QDOT Drawbacks Strict QDOT requirements may limit flexibility Delays, but does not avoid, payment of estate taxes Distributions from QDOT generally subject to estate taxes 15
Overview of Nonresident Aliens Gift and Estate Taxes Gift and estate tax rates same as those for U.S. citizens Only real estate and tangible assets are not subject to gift taxes Only U.S.-sitused assets are subject to estate taxes Rules to determine if property is located in U.S. differ, depending on type of property and gift or estate tax applicability 16
Overview of Nonresident Aliens Estate Tax Only $60,000 can be sheltered from estate tax Certain assets exempt from estate tax Depending upon assets, substantial U.S. estate tax exposure can arise 17
Example: Nonresident Alien Juan Valdivia $10 million in U.S. property and investments No advanced planning Death in 2008 Gross Estate Taxes ($4,380,800) Less Credit $13,000 Net Estate Taxes ($4,367,800) Net U.S. Assets $5,632,200 Amount of Estate Shrinkage 43% 18
Planning Strategies for Non-U.S. Citizens Determining if and when taxes might apply Taking advantage of available exclusions and exemptions Considering gifting strategies Planning for estate liquidity 19
Life Insurance: A Tool That Provides Estate Liquidity Cash gifts can fund policy Insurance proceeds are income tax free Policy can be structured to avoid estate inclusion 20
Is Gift and Estate Tax Planning Applicable to Me? Are either you or your spouse a non-u.s. citizen? Are you a Resident or Nonresident Alien? Do you have a sizeable estate? Do you have sizeable investments located in the U.S.? 21
Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company (collectively Transamerica ), and their representatives do not give tax or legal advice. This material is provided for informational purposes only and should not be construed as tax or legal advice. You should rely solely upon your own independent advisors regarding your particular situation and the concepts presented here. Discussions of the various planning strategies and issues are based on our understanding of the applicable federal tax laws in effect at the time of presentation. However, tax laws are subject to interpretation and change, and there is no guarantee that the relevant tax authorities will accept Transamerica s interpretations. Additionally, this material does not consider the impact of applicable state laws upon clients and prospects. Although care is taken in preparing this material and presenting it accurately, Transamerica disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it. This information is current as of October 2008. Transamerica Financial Life Insurance Company is authorized to conduct business in the state of New York. Transamerica Life Insurance Company is authorized to conduct business in all other states. 22
OLA 1711 T 1008 Your Guide to Gift and Estate Planning for Non-U.S. Citizens