Asset Protection & Estate Planning for Non-U.S. Citizens
In my experience, I have found non-U.S. citizens are often inadequately informed about the repercussions U.S. and international estate and tax laws can have on their assets and overall estate. Sometimes, when I bring up this topic with clients, they realize they have not planned sufficiently and they get stressed. I want to offer some peace of mind for those of you in this scenario: while these are complex issues, there are experts who can walk you through this process and help you put a plan in place to protect your assets and estate. It may feel overwhelming at first, but with a team and some legwork, you can get it done.
Start by Asking the Right Questions
Your answers to the questions below can have significant implications in building a plan around your estate, gifting, taxes and more. If you are a non-U.S. citizen living in (or moving to) the U.S., we recommend you reevaluate your answers to these questions each time you embark on a major life change. Making an informed, strategic plan as early as possible can help protect you and your family.
What is my status in the U.S.?
If you are a non-U.S. citizen living in the U.S., review the Substantial Presence Test to determine your legal primary residence from a U.S. tax and estate standpoint and the Facts and Circumstances Test (pg. 4) to better understand your domiciliary status. There are different estate and tax implications and exemptions for U.S. domiciliaries (such as a long-term permanent resident with a green card) and non-U.S. domiciliaries (such as a non-resident with a temporary visa).
Recommendation: Work with an estate planning attorney and CPA with international expertise to help you understand if you are considered a U.S. domiciliary or non-U.S. domiciliary in terms of U.S. tax obligations. They can also walk you through various estate and tax consequences based on your current and future status.
How long do I plan to live in the U.S.?
Those who plan to reside in the U.S. for a relatively short period of time often opt for a temporary visa, such as a work visa, and are considered non-U.S. domiciliaries. U.S. visas do impose limits on time and flexibility and traveling back-and-forth from the U.S. and overseas can be complicated.
Alternatively, if you plan on being a long-term resident and get a green card, you may benefit from the current $12.9 million per person estate tax exemption. However, you might also be subject to an exit tax (also known as the expatriation tax) if you’ve held your green card for at least eight out of the last 15 years and decide to permanently move out of the U.S. Read more on the IRS expatriation tax page.
Recommendation: Assess (and reassess over time) your intended timeline residing in the U.S. and your desire to have a green card. One potential way to avoid the exit tax is to renounce your green card and move out of the U.S. before eight (cumulative) years. This is of course a major, personal decision and one best contemplated alongside your family and team of domestic and international advisors. Be aware that it is not unheard of for the advisory team working on your behalf to need a year for preparation, which is why it is crucial to be thinking ahead and communicating with them regularly.
Am I obligated to pay a U.S. estate tax?
If you are considered a U.S. domiciliary from an estate tax standpoint (whether you have a green card or not) and your combined gross estate exceeds the $12.9 million (in 2023) per person estate exemption, then the portion of your estate above the $12.9 million amount will be subject to U.S. estate tax. However, there are ways to mitigate estate tax, such as gifting some of your estate away so that it falls below the $12.9 million exemption or setting up a life insurance policy to cover estate tax upon your passing.
However, if you are a non-U.S. domiciliary from an estate tax standpoint, you are only afforded a $60,000 per person estate tax exemption. Therefore, it is critical to understand how you will be treated (e.g. U.S. domiciliary vs. non-U.S. domiciliary) as that will impact how best to plan and protect your estate from taxation.
There are numerous factors at play when it comes to how your estate is defined and valued, including domiciliary status and situs (location) of assets. For example, if you have an account with an international bank, own a home in another country, or have international investments, those assets may not be factored into your U.S. estate. Take a look at this chart to get a sense of whether your assets might be taxable under U.S. gift and estate tax law
Recommendation: It is important to understand how your domiciliary status and asset designations will impact your estate tax exemption and liability upon your passing. An estate planning attorney with an international planning expertise can be a huge value during this process and can advise how your assets are characterized from a U.S. and international standpoint.
What country will I likely be moving to after living in the U.S.?
Each country has a distinct set of laws and tax guidelines. An example: one of our Israeli clients decided to move back to Israel and give up their green cards to avoid U.S. exit tax and not be subject to U.S. federal income tax going forward. Additionally, this client was not subject to Israel tax on investment income and capital gains for the next 5-10 years. He might have massively overspent on taxes had he not had a specialized team in place with the knowledge and foresight to properly guide him.
Next Steps: Assembling a Team
This article is meant as a helpful, simplified starter guide to get the wheels turning. I wholly recommend you work with a team of professionals to help you understand and navigate the laws, tax implications and exemption opportunities that apply to your unique set of circumstances. This team might comprise a U.S. tax attorney and/or estate planning attorney, a U.S. certified public accountant (CPA) and a non-U.S. accountant in your home country and/or the country in which you plan to reside after your time in the U.S. While major accounting and estate planning firms usually have an international wing to assist in these areas, from my experience, I would recommend finding accountants based in both (or all) applicable countries, as they will likely be most familiar with their own country’s complicated set of estate and tax laws.
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