US citizenship and estate taxes

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atrayapr1

Registered Users (C)
Just came to know a big disadvantage of getting US citizenship, estate taxes. Something like 50% of all your assets above a particular limit will be handed over to the govt. after your death, rather than to your children or persons on your will.
A way to avoid this is by going back to your home country and giving up citizenship, but you'll still be subject to some 10 year reporting requirement if you fall under some criteria. Does anyone have further info or experience on this topic? Thanks
 
It also applies if you have a green card. And no estate tax whatsoever is to be paid if the value of the inheritable assets is below the threshold (something like $2 million).
 
If the assets are in the US, I don't know if you can get rid of it by surrendering your GC or citizenship. But I don't see how they would be able to touch non-US assets.

Anyway, if you really have more than $2 million of assets, you need to consult with an attorney or accountant who specializes in estate planning, not people on an anonymous message board. And don't tell me you can't afford to do that if you are that rich.
 
The threshold limit has been increased to 3.5 million dollars in 2009 so unless you except your estate to be more than this amount it isn't an issue. Talk to a tax consultant before considering giving up citizenship or GC status.
 
Jackolantern said:
If the assets are in the US, I don't know if you can get rid of it by surrendering your GC or citizenship. But I don't see how they would be able to touch non-US assets.

Anyway, if you really have more than $2 million of assets, you need to consult with an attorney or accountant who specializes in estate planning, not people on an anonymous message board. And don't tell me you can't afford to do that if you are that rich.
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This is an issue which concerns all not just the rich. If your spouse is a non citizen, any amount over $60K will be subject to 50% estate tax, also you are on the hook for gift tax.

Many people on these boards appear to have taken up GC/Citizenship for the sake of employment without realizing that significant punitive taxes await them during wealth transfer.
 
Yes, I see it has been increased to $3.5 million for this year, but that is not permanent. It drops back to $1 million in 2011, unless Congress increases the exemption for future years. The estate tax needs to be looked at mainly from a long-term perspective, unless there is a reason why one expects to die very soon.
 
atrayapr1 said:
This is an issue which concerns all not just the rich. If your spouse is a non citizen, any amount over $60K will be subject to 50% estate tax, also you are on the hook for gift tax.
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Only $60K? Where did you get that from?
 
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atrayapr1 said:
That was an incorrect quote, in fact the entire estate is subject to 46% tax if your spouse is a non citizen
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The article you quoted does not say the entire amount is subject to tax, and the one I quoted explains that the amount under the limit is tax free. The apparent difference is that noncitizen spouses cannot take the unlimited exemption that applies to US citizens.

However, it gets quite complicated:
http://www.frascona.com/resource/mag102jt.htm
 
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atrayapr1 said:
This is an issue which concerns all not just the rich. If your spouse is a non citizen, any amount over $60K will be subject to 50% estate tax, also you are on the hook for gift tax.

Many people on these boards appear to have taken up GC/Citizenship for the sake of employment without realizing that significant punitive taxes await them during wealth transfer.
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The yearly exclusion for a non citizen spouse is $133,000 in 2009. Where do you get 60K from?
 
Thanks for your replies. Now I understand why so many well heeled older folks are returning from the US to places like Bangalore in India. Many purchased property in India, whose value has increased significantly. So if they are US citizens they would need to shell out 46% to transfer estate after the exempt limit, in India they can do this without paying anything. Only disadvantage is that they need to give up citizenship and lose social security benefits.
 
This other article says the exemption amount ($2 million at the time it was written) is available to noncitizen spouses, but it's the unlimited deduction that is not.

http://carolinanewswire.com/news/News.cgi?database=columns.db&command=viewone&id=418
Without the marital deduction, spouses who aren't U.S. citizens can only receive $2,000,000 from their spouses free from federal estate taxes. Every U.S. resident, regardless of citizenship, gets a $2,000,000 estate exemption amount. Unfortunately, any assets over that amount may be substantially reduced by taxes, resulting in the depletion of funds available for the spouse's support.
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To be correct, the non citizen spouse can get the $2M exclusion, only if the money is placed in a QDOT trust. Otherwise there is no exclusion
"At death, gifts to your non-citizen spouse can qualify for the marital deduction and avoid estate tax only if the property is held in a special trust for the non-citizen spouse's benefit, sometimes called a "qualified domestic trust" or "QDOT trust.""

http://library.findlaw.com/1998/Apr/1/131148.html
 
atrayapr1 said:
So if they are US citizens they would need to shell out 46% to transfer estate after the exempt limit,
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If both spouses are US citizens, they wouldn't have to pay any estate tax at all when one inherits from the other. The limitation is only applicable when the surviving spouse is a noncitizen.

Regardless, anybody with that level of assets really needs to see an experienced professional. Those laws appear to be infested with loopholes and hidden traps and somebody with sufficient expertise is needed to help navigate them.
 
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Jackolantern said:
If both spouses are US citizens, they wouldn't have to pay any estate tax at all when one inherits from the other. The limitation is only applicable when the surviving spouse is a noncitizen.

Regardless, anybody with that level of assets really needs to see an experienced professional. Those laws appear to be infested with loopholes and hidden traps and somebody with sufficient expertise is needed to help navigate them.
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If both spouses are US citizens, then 46% applies when estate transfers to children, as I said before US citizenship has significant punitive tax consequences during wealth transfer.
 
atrayapr1 said:
If both spouses are US citizens, then 46% applies when estate transfers to children, as I said before US citizenship has significant punitive tax consequences during wealth transfer.
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Yes, the children cannot use the unlimited deduction regardless of their citizenship, but the $X million exemption still applies.

For at least 95% of the population, there are no punitive tax consequences because they don't have that much in assets.
 
If you love your children you give them your love and a good education to make them good citizens. Then they are supposed to find their place in society by themselves. I don't think that the estate taxes are unreasonable, it's part of what levels the play field a bit between the children of the haves and the have nots. As a country and as a society one would prefer resources being allocated in a way that productivity is maximized. If money can be inherited from generation to generation without any taxing it runs the risk of creating more plutocracies and reducing competition and innovation.

PS: Do you value US citizenship so little that you are willing to give it up for money?

My 2 cents.
 
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