While Relinquishing One’s US Citizenship Can Mitigate Estate and Gift Tax Obligations
By Ladidas Lumpkins, Prager Metis International LLC
Relinquishing one’s US citizenship can mitigate an individual’s estate and gift tax obligations, but a “Covered Expatriate”* should plan carefully when disposing of assets. Internal Revenue Code Section 2801 imposes a tax on US citizens or residents who receive certain gifts or bequests from Covered Expatriates (CEs). Even if the property is non-US-situs property, all of it is subject to the 2801 taxing regime.
That said, Section 2801 does offer planning opportunities.
Annual Exclusion Gifts – CEs can give an unlimited number of USD 15,000 gifts of cash or property, completely tax free.
Gifts/Bequests of US Property – Section 2801 does not apply to gifts “otherwisesubject to US estate or gift taxes”.
Unlimited Marital and Charitable Deduction
Gifts to US Spouse – CEs can transfer unlimited amounts of property to a spouse tax free.
Domestic and Foreign Trusts
A Domestic Trust Gift – This is treated as if it were a US person and pays tax at the highest marginal tax rate applicable.
Transfers to Foreign Trusts – These should be analysed carefully.
Using Foreign Trusts to Defer Taxes – CEs can achieve taxdeferral and income-tax savings.
Distributions from Foreign Trusts – When attributable to a gift or bequest from CEs, the 2801 taxing regime applies.
Election to Be Treated as A Domestic Trust – This allows CEs to plan whether they want to pay the taxes now or in the future.
Life Insurance Trusts – These can cover insurance premiums and provide funding for taxes and other wealth protection.
Gifts to Non-US Persons
Avoiding Estate and Gift Taxes – Simply gift non-US-situs assets to non-US persons.
Allocation of Gifts Among US Persons – Taxes for a portion of an estate that is US-situs and left to US beneficiaries, would be borne by CEs.
Generation-Skipping Transfer (GST)
It can avoid the additional GST tax currently with a top rate of 40%.
* For a definition of “Covered Expatriate”, visit www.irs.gov/ individuals/international-taxpayers/ expatriation-tax.
Ladidas LumpkinsGGI member firm
Prager Metis International LLC
Advisory, Auditing & Accounting, Corporate Finance, Fiduciary & Estate Planning, Tax
More than 15 offices throughout the US
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Prager Metis International LLC is a top accounting firm providing a full range of accounting, audit, tax, and advisory services to domestic and international clientele in a wide range of industries. With 17 offices worldwide, they have a level of expertise and a unique global presence that makes their clients’ world worth more.
Ladidas Lumpkins is a partner in the Trusts & Estates department of Prager Metis. She provides strategic tax planning, compliance, and consulting to high-net-worth families and their closely held businesses. She specialises in the US taxation of individuals and trusts in multi-national family groups.
Published: rust & Estate Planning Newsletter, No. 04, Autumn 2019 l Photo: Korrawin - stock.adobe.com