- posted 9 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 clarification on:
- 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.