- posted 10 years ago
I have some questions that are specific to estate tax for Non US Residents /
Non US Citizens (let's call such a person an NRNC). Let's NOT go into
probate or income taxes in this thread.
In doing some initial research, my first great shock was to find out that
starting in 2011 an NRNC owes US estate tax on any US Situated holdings in
excess of $60K. Unlike US Citizens who get the $1M lifetime gift tax
exclusion (or whatever that exclusion will be under future laws), the NRNC
by default have only $60K of exclusion before getting hit with very high
estate taxes. So an NRNC with a US bank account, or holding US stocks, has
potential estate tax on those.
Of course as usual there are exceptions. Some of these are what I wanted
- Apparently stocks of US corporations are subject to estate tax, even if
those shares are held *outside the US*, if those shares are held in the name
of the NRNC. But stocks of foreign corporations are an exception. Can
others confirm that if an NRNC holds foreign stocks in a US brokerage
account that they are not subject to estate tax on those shares?
- Bank deposits: here I am simply confused. The law appears to be written
that bank deposits of an NRNC are subject to estate tax unless the interest
from those deposits would be exempt from US income tax under Section
871(i)(1). So would an ordinary bank account at a US bank held in the name
of an NRNC be exempt or not, for a cash deposit?
- Certificates of deposit in a US bank: Apparently these are exempt from
estate tax for an NRNC?
- Cash deposits in a brokerage account: Apparently these are not "bank
deposits" because brokerages are not banks. Are such cash deposits held in
the name of an NRNC subject to estate tax?
- Portfolio debt: this includes things like bonds, debentures, and notes.
The law says that if the interest from the portfolio debt obligation is
exempt from US income tax, then the debt obligation is deemed not located in
the US. So using the case of an NRNC who holds a US brokerage account in
her own name and buys bonds of a public US corporation, are those bonds
considered exempt from estate tax, since the interest paid on those bonds is
exempt from US income tax to an NRNC?
In general, I come away from the first pass at this thinking that these laws
are completely random. There are huge estate tax implications for seeming
random arrangements of assets for an NRNC that holds assets inside the US.
For a person with inconsequential assets, it is inconceivable that the NRNC
will ever understand these laws well enough to plan for them. For a person
with a really small estate, it's unlikely that even the planner they use
would fully dig into every detail of these laws because of all of the twists
and turns and landmines. It's clear to me the reason for the Form 3520
disclosure rules is as much about catching innocent people as it is about
catching deliberate evaders. The IRS must make a fortune following up on
people who file 3520s since there is likely some aspect of the NRNC's US
based assets that will be subject to estate tax, unless the person exercised
extraordinary care up front.