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Estate and Gift Tax – Non Resident Aliens and U.S. Citizens Living Abroad

Last week, a few clients asked me about the tax consequences of their parents making gifts to them. One client’s parents are nonresident aliens and the other client’s parents are U.S. citizens living abroad. Here is a general outline of the estate and gift tax issues.

The U.S. Estate and Gift Tax is different for U.S. persons than it is for nonresident aliens.

U.S. Estate and Gift Tax on U.S. Persons

What is a U.S. person?

  1. A U.S. citizen, regardless of residence (could be living in India or China or anywhere);
  2. A dual citizen of the U.S. and one or more other countries;
  3. A U.S. resident, regardless of citizenship

A U.S. person is subject to U.S. estate and gift tax on her worldwide assets.

A U.S. person has a lifetime estate and gift tax exclusion of $5,250,000 and an annual gift tax exclusion of $14,000 per person. This means that she can die with up to $5,250,000 of assets without an estate tax. To the extent her assets are worth more than $5,250,000, they will be taxed at 40%.

During her lifetime she can gift up to $5,250,000 with no gift tax. In addition, she can gift $14,000 per person per year with no gift tax. If she uses her lifetime gift tax exclusion, the amount used must be deducted from her estate tax exclusion. For example, if she makes $1,000,000 in gifts using her lifetime exclusion. Then when she passes away, her estate tax exclusion will be $5,250,000 minus $1,000,000 = $4,250,000.

U.S. Estate Tax on Nonresident Aliens

Nonresident aliens are only subject to U.S. estate tax on certain assets, including:

  1. U.S. real property
  2. U.S. tangible personal property. This includes:
    • Jewelry, furniture, cars, etc.
    • Shares in U.S. corporation stock
    • Cash in the U.S.
    • U.S. safe deposit boxes

The estate tax exclusion for nonresident aliens is only $60,000. (Contrast that with the estate tax exclusion for U.S. persons of $5,250,000). The estate tax rate is 40%.

U.S. Gift Tax on Nonresident Aliens

Nonresident aliens are only subject to U.S. gift tax on certain assets, including:

  1. U.S. real property
  2. U.S. tangible personal property
  3. Cash located in the U.S. at the time of the gift

Intangible property, regardless of where it is located, is NOT subject to U.S. gift tax. For gift tax purposes, intangible property includes shares in U.S. corporation stock and bonds. Although U.S. stocks and bonds are subject to the U.S. estate tax, gifts of U.S. stocks and bonds are not subject to the U.S. gift tax.

Nonresident aliens only have the annual gift tax exclusion of $14,000 per person. They do not have the lifetime gift tax exclusion of $5,250,000 that U.S. persons have.

 

 

 

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