Estate Planning Concepts for Nonresident Aliens: What Mexican Nationals and Their Advisors Need to Know

Estate Planning Concepts for Nonresident Aliens: What Mexican Nationals and Their Advisors Need to Know
Estate Planning Concepts for Nonresident Aliens:
          What Mexican Nationals and
          Their Advisors Need to Know
               San Antonio CPA Society
                   CE Symposium
                September 22, 2011
Foreign Investment in the United States
                             Foreign Direct Investment in the United States


                                        Year                            Amount
                                        2006                            $243.2 Billion
                                        2007                            $275.8 Billion
                                        2008                            $319.7 Billion
                                        2009                            $152.1 Billion
                                        2010                            $194.5 Billion




    Source: Organization for International Investment, September 2011




2
Foreign Investment in the United States
                                               Residential Real Estate in Texas

                     Year                                 Purchased By Nonresidents of the U.S.


                     2007                                             8%


                     2008                                             7%


                     2009                                             11%


                     2010                                             8% (projected)


    Source: National Association of Realtors, June 2010




3
SOI Tax Stats On Nonresident Estate Tax Returns
                                                       Form 706-NA Year 2007: IRS Statistics

     Number of Form 706-NAs filed: 120
     Taxable Returns Over $1 million: 21
     Total Amount of Taxable U.S. Property Reported: $71.4 million
     Total Reported Worldwide Assets Reported: $171.3 million
     Total Taxable U.S. Real Estate Reported: $20.7 million
     Total Taxable U.S. Publically Traded Stock Reported: $30.9 million
     Total Taxable U.S. Cash Assets Reported: $11.8 million


    Lesson: There is vast under reporting of foreign wealth based in the U.S. on estate tax returns. The Obama
    Administration is highly aware of noncompliance with nonresident tax provisions and is moving to correct it.




    Source: IRS, Statistics of Income Division, September, 2009




4
GAO Report On Nonresident Tax Compliance

     In May of 2010, the GAO issued a report on NRA tax compliance revealing broad non-compliance with many reporting
    and payment requirements.
     The report states that few NRAs are fully compliant with U.S. tax reporting requirements. The GAO opines that the
    situation is “potentially leading to broader noncompliance if individuals assume the lack of enforcement extends to other tax
    rules.”
     The Service’s Large and Mid-sized Business division of International Compliance Strategy and Policy Group plans to hire
    202 new examiners in 2010.
             LMSB International is actively cross-checking international filings across tax regimes to try to close the NRA
            noncompliance loop.
             LMSB International has an internal marketing campaign within the Service to increase NRA enforcement across
            divisions, including income tax and transfer tax areas.
     The Obama Administration has been concentrating on offshore/nonresident issues through FBAR, FATCA, and other
    initiatives that aim to derive more revenue from these types of taxpayers.
     The Internal Revenue Service is targeting NRA noncompliance.



    Source: GAO-10-429: Report to the Chairman, Subcommittee on Select Revenue Measures, Committee on Ways and Means, House of Representatives: Tax Compliance – IRS May Be Able to
    Improve Compliance for Nonresident Aliens and Updating Requirements Could Reduce Their Compliance Burden, May 14, 2010.




5
Treaties
    The United States has treaties with the following countries
    regarding estate, gift, or generation-skipping transfer tax matters:

           Australia                    Italy
           Austria                      Japan
           Canada                       Netherlands
           Denmark                      Norway
           Finland                      Republic of South
                                          Africa
           France
                                         Sweden
           Germany
                                         Switzerland
           Greece
                                         United Kingdom
           Ireland



6
Taxes
                                                            The Four Taxes
       There are four U.S. taxes which must be considered for business and personal estate planning:

     Income Tax: A tax on personal earnings, wages, capital gains, and business income. See generally, IRS Publication 519
    for information on income taxation of NRAs.


     Gift Tax: A tax on gratuitous transfers: any transfer to an individual, either directly or indirectly, where full consideration
    (measured in money or money's worth) is not received in return. The gift tax provisions applicable to NRAs are found in Code
    Sections 2501(a)(2) and (3), (b) and (c), and 2511.


     Estate Tax: A tax arising on the death of an individual levied against the property included in the decedent’s estate. The
    estate tax provisions applicable to NRAs are found in Internal Revenue Code Sections 2101 through 2108 and in Code Sections
    2208 and 2209.


     Generation Skipping Transfer Tax: A tax on a gift to a grandchild, or to an unrelated person 37.5 years younger
    than the transferor. generation-skipping transfer (“GST”) made by a NRA is subject to the U.S. GST tax only if the transfer is
    also subject either to the U.S. estate tax or the U.S. gift tax or, if the transfer is from a trust, if the NRA's transfer to the trust
    was subject to the U.S. estate or gift tax.




7
Forms
    These are some of the tax forms associated with international taxation.
    Form W-7 — (Application for Individual Taxpayer Identification Number)
    W-8 — Certificate of Foreign Status
    W-8EXP — Certificate of Foreign Government or Other Foreign Organization for United States Tax
    W-8BEN — Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding
    W-8ECI — Certificate of Foreign Person’s Claim for Exemption From Withholding on Income Effectively Connected With the
    Conduct of a Trade or Business in the United States
    W-8IMY — Certificate of Foreign Intermediary, Foreign Partnership, or Certain U.S. Branches for United States Tax
    Withholding
    Form 706 — United States Estate (and Generation-Skipping Transfer) Tax Return
    Form 706-A — United States Additional Estate Tax Return
    Form 706-GS(D) — Generation-Skipping Transfer Tax Return for Distributions
    Form 706-GS(D-1):Notification of Distribution from a Generation-Skipping Trust
    Form 706-CE — Certificate of Payment of Foreign Death Tax
    Form 706-GS(T) — Generation-Skipping Transfer Tax Return for Terminations
    Form 706-NA — United States Estate (and Generation Skipping Transfer) Tax Return
    Form 706-QDT — U.S. Estate Tax Return for Qualified Domestic Trusts
    Form 720 — Quarterly Federal Excise Tax Return




8
Forms
    Here are some more. This list is from California Attorney Phil Hodgen: Hogden.com
    Form 1001 — Ownership, Exemption, or Reduced Rate Certificate
    Form 1040NR — U.S. Non-Resident Alien Income Tax Return
    Form 1040NR-EZ — U.S. Income Tax Return for Certain Nonresident Aliens with No Dependents
    Form 1042 — Annual Withholding Tax Return for U.S. Source Income of Foreign Persons
    Form 1042-S — Foreign Person’s U.S. Source Income Subject to Withholding
    Form 1078 — Certificate of Alien Claiming Residence in the United States
    Form 1120-F — U.S. Income Return of a Foreign Corporation
    Form 5472 — Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S.
    Trade or Business
    Form 8288 — U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests
    Form 8288-B — Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
    Form 8300 — Report of Cash Payments Over $10,000 Received in a Trade or Business
    Form 8709 — Exemption from Withholding on Investment Income of Foreign Governments and International
    Organizations
    TD F 90-22.1 — Report of Foreign Bank and Financial Accounts
    TD F 90-22.47 — Suspicious Activity Report
    TD F 90-22.53 — Designation of Exempt Person




9
Status for Income Tax
     Any individual who is not a “resident” of the U.S. is subject to U.S.
     income tax only on U.S. income.
     “Resident” means:
      The individual is a lawful permanent resident of the U.S. (green card holder), or
      The individual is deemed “substantially present” in the U.S.




10
Status for Income Tax
                                       Substantial Presence Test
     A mathematical calculation comprised of two parts:
     The 31-day test and the 183 day test.
     To be considered substantially present in the U.S. under the test, an alien must be physically
     present in the U.S. for at least 31 days during the current calendar year, and 183 days during
     the 3-year period that includes the current year and the 2 years immediately before that,
     counting:
      All the days present in the current year, and
      1/3 of the days present in the first preceding year, and
      1/6 of the days present in the second preceding year
       Summary: if an alien is in the U.S. for an average of 122 days each year over three years,
      then the test is met.
       There are certain exceptions available even if the substantial presence test is met. The
      Service will look to “closer connections” to determine income tax residency. Certain exceptions
      and alterations of the basic test are articulated in Mexico-US income tax treaty.




11
Status for Income Tax
             Substantial Presence Test Decision Tree from IRS




12
Status for Income Tax

                          Why Residency Matters


      Resident Alien Status: U.S. income tax imposed on worldwide income.
      Nonresident Alien Status for Income Tax Purposes: U.S. income tax
       imposed only on income from the U.S.
      See Publication 519 for more details.




13
Status for Income Tax
                                    Why Residency Matters
    A NRA is subject to U.S. income tax on income effectively connected with a U.S. trade or
     business at the same rates as apply to U.S. income tax residents.
    Income from fixed or determinable annual or periodical gains, and profits, are generally taxed
     at a flat 30%.
    Interest on bank deposits, and “portfolio interest” such as income from bonds, is exempt from
     U.S. income taxation.
    Gains from the sale of a stock of a U.S. corporation are generally exempt from income
     taxation, unless the NRA is present in the U.S. for 183 days in the year of sale.
    Rental income from a U.S. source will generally be taxed at the 30% level unless the NRA
     makes an affirmative election to treat it as business income.
    The sale of U.S. real property results in capital gains tax if gains are realized. Under the
     Foreign Investment in Real Property Tax Tax (FIRPTA) there is a withholding of 10% of the
     amount realized. FIRPTA withholding applies if the sale is for a loss or for a gain.




14
Status for Income Tax
                                    US-Mexico Tax Treaty
    Article 4 of the U.S.-Mexico Income Tax Treaty, augments the basic “substantial presence” test. Under the
     terms of the Treaty, having a “permanent home” available in the U.S. is a factor in determining income tax
     residency.
    If a Mexican national has permanent homes in both the U.S. and Mexico, then the Treaty requires the
     application of a legal test that looks to the taxpayer’s “center of vital interests,” or “habitual abode.”
     Mexican nationals should be aware that owning a home in the U.S. is a tiebreaking factor in determining
     income tax residency under the Treaty.
    The U.S.-Mexico Income Tax Treaty modifies the tax rates on dividends from U.S. corporations, and
     interest on debts and mortgages. Additionally, there are credits available to mitigate double taxation.
    Income that tax residents of Mexico receive for personal services performed in the U.S. as independent
     contractors or self-employed individuals are exempt from income tax in the U.S. if the Mexican national is
     not in the U.S. for more than 183 in a 12-month period, and has no “fixed base” that they regularly use to
     perform services.
    The Treaty also makes special provisions for Mexican students in the U.S. so that their worldwide income
     is not taxed even if they stay for extended periods of time.




15
Status for Income Tax
                               Reporting Obligations.
     In additional to paying tax on worldwide income to the U.S., income tax residents
     are also required to report information to the Service:
  If a domestic corporation has foreign shareholders owning 25% or more then it must
   file Form 5472 to report transactions with foreign or domestic “related parties.”
  U.S. persons who receive aggregate foreign gifts or bequests of more than $100,000
   from an individual, or $10,000 from a partnership or corporation, during a tax year
   are required to file Form 3520.
  U.S. person who “controls” a foreign corporation or partnership (greater than 50%
   vote or value), or who is a 10% shareholder of a “controlled foreign corporation,”
   must file Form 5471 (for corporations) or Form 8865 (for partnerships) to report
   certain information concerning the foreign corporation or partnership




16
Status for Income Tax
                                Reporting Obligations.


  A U.S. grantor of a foreign trust must file Form 3520, and if there is a US beneficiary,
   he or she must file Form 3520-A to report trust information.
  Report of Foreign Bank and Financial Accounts, or FBAR, Form is TD F 90-22.1.
   Requires a US tax resident to report foreign accounts with a value over $10,000.
   Offshore Voluntary Disclosure Initiative ended September 9, 2011. US tax resident
   can still disclose, but amnesty is not guaranteed and civil penalties will have to be
   negotiated.
  U.S. owner of passive foreign investment companies (often interpreted by the Service
   to include foreign mutual funds) must file Form 8621(there are also some ugly tax
   consequences to owning PFICs for U.S. tax residents).




17
Status for Transfer Tax

                                  Tests Not The Same


      The tests for income tax treatment and transfer tax treatment of foreign persons
     are not the same under U.S. law.


      Meeting a “domicile” test subjects a person to transfer tax, not the “residency” test
     used for income tax.




18
Status for Transfer Tax

                            “Domicile” Means:
        The individual is physically present in the U.S., and
        The individual has the current intention to remain indefinitely in
         the U.S.

           • Intent is the operative factor
           • Shown by surrounding facts and circumstances




19
Status for Transfer Tax
                            What “Domicile” Really Means:
         Alien was in the U.S. because he could not return home to Holland during World
          War II. For his living space, the alien bought only “light, inexpensive furniture.” The
          alien did not join a church while in the U.S. At death the alien’s remains were taken
          to Holland. Held: no U.S. domicile. See Estate of Nienhuys v. Commissioner, 17
          T.C. 1149 (1952).
         Canadian alien had a home in Florida where he lived from October to April. He had
          no home in Canada. But he voted and filed income tax in Canada, and kept his
          Canadian driver’s license plus car registration. The widow testified that the alien
          decedent intended to keep Canadian domicile. Held: No U.S. domicile. See Estate of
          Paquette v. Commissioner, T.C. Memo 1983-571 (1983)
         Alien left the U.S. in 1986, returning to home country Pakistan. He died in 1991.
          Though the decedent held a green card, he allowed his re-entry permit to expire,
          and had filed Form 1040NR purportedly abandoning the U.S. as an income tax
          resident. Decedent never spoke English. Held: domiciled in the U.S. for estate tax
          purposes. The court emphasized that the tests for income tax residency and estate
          tax domicile are distinct. See Estate of Khan v. Commissioner, T.C. Memo 1998-
          22 (1998).




20
Status for Transfer Tax

                           Why Domicile Matters:
      Domiciled alien: U.S. estate tax imposed on worldwide estate.
      Non-Domiciliary status for Estate Tax Purposes: U.S. estate tax
       imposed on estate of U.S. situs property only.
         For the balance of this presentation, a “NRA” is defined as an
          individual who is not domiciled in the U.S. for estate tax purposes.
         Some practitioners refer to these individuals as “Non-Doms.”




21
What’s The Difference? For 2011, 2012…and beyond?

     US Domiciliary:                         Non-Domiciliary:
      Taxed on property worldwide            Taxed on U.S. situs property
         $13,000 Annual 2503(b) Gift         $13,000 Annual 2503(b) Gift
         Exclusion                             Exclusion
      Under unified credit can gift up to    No unified credit. Taxed on gifts
       $5 Million in life.                     over annual exclusion
                                              $60,000 Estate Tax Exemption
      $5 Million Estate Tax Exemption
       under unified credit.                  $5 Million GSTT Exemption
      $5 Million GSTT                        $136,000 Annual Gift Exemption to
                                               Non-citizen Spouse (Indexed)
      Unlimited Marital Deduction
                                              Unlimited Marital Deduction for gift
                                               to noncitizen spouse allowed at
                                               death only through a special trust
                                               (QDOT).


22
What’s The Difference? Special Rules for 2010

     US Domiciliary:                 Non-Domiciliary:

      No Estate Tax                  No Estate Tax

      Carryover Basis                Carryover Basis

      Can Step Up $1.3 Million in    Can Step Up $60,000 in Basis
       Basis                          Additional $3.0 Million
      Additional $3.0 Million         Spousal Basis Step Up
       Spousal Basis Step Up          No GSTT applied
      No GSTT applied




23
Estate Taxation of Non-Domiciliaries

       Special Estate Tax Rules for 2010 for Non-Domiciliaries
      No Estate Tax on U.S. situs property
      Can get a basis step up on $60,000 of U.S. property
      Can get spousal basis step up on $3.0 million of U.S. property
      Cannot elect QDOT treatment for trusts benefiting a surviving NRA spouse.
          QDOTs explained below.
      Transfer from a U.S. estate to a NRA is treated as a sale.
          Gains must be recognized by the estate if the fair market value exceeds
           decedent’s basis.




24
Estate Taxation of NRAs
                            Estate Tax Rules for 2011
      No unified credit available to Non-Domiciliaries.
         Non-Domiciliaries receive instead an “estate tax credit” of
          $13,000. Treaties alter this rule.
         In essence, a Non-Domiciliary can pass $60,000 of U.S. situs
          property free of estate taxes.
         The estate tax rate imposed on transferred property over $60,000
          is progressive, with a maximum rate of 35%.




25
Estate Taxation of NRAs

                Estate Tax Imposed on NRA’s “Gross Estate” in the U.S.


      Code Sections 2031 through 2046 are used to determine what property is included
       in the Gross Estate.
          Same tests as those used for a U.S. citizen or domiciliary.
      If property falls under these Code Sections, then a further analysis is required to
       ascertain the “situs” of the property for NRA transfer tax purposes.
      Property that has a U.S. situs is included in the Gross Estate of the NRA for U.S.
       transfer tax purposes.




26
Estate Tax Situs Rules

     Upon the death of a NRA, the NRA’s estate shall be assessed estate taxes
     on any property deemed to be situated within the U.S. on the date of
     death. See Code Sections 2101 and 2103.



 Application of the situs rules differ depending on the nature of the
  property.
 The situs rules for Estate Tax and Gift Tax are not the same for purposes
  of determining a NRA’s tax liability.
       This disjunction provides for both confusion and planning leverage.




27
Estate Tax Situs Rules

                 Property Deemed to Have U.S. Situs for Estate Tax
      U.S. Real Estate. See Treas. Reg. §20.2104-1(a)(1).
          U.S. real estate is in the gross estate of the NRA if owned directly, or owned as
           a joint tenant (to the extent the NRA contributed to the acquisition of the
           property).
          Common use of foreign corporate forms to hold U.S. real estate.

              • If a foreign corporation owns U.S. real estate, the death of the stock holder
                results in no inclusion of either the real property or the foreign corporation
                stock in the U.S. estate.
              • Other tax implications must be carefully considered before implementing
                any ownership structure using an offshore corporation.
              • See discussion of structuring of NRA home purchases in the U.S., following.



28
Estate Tax Situs Rules

                   Property Deemed to Have U.S. Situs for Estate Tax
        Tangible Personal Property
           If the property is located in the U.S., it is includible in the gross estate. See Treas. Reg.
            §20.2104-1(a)(2).
           Cash in a safe deposit box is tangible personal property. See Rev. Rul. 55-143.
             Property in transit is not included in the gross estate.
               • Jewelry and personal effects of NRA who died in Florida during stop-over en route from
                 Canada to Nassau, was not U.S. situs property for federal estate tax purposes. See Murchie
                 v. Delaney, 82 F.Supp. 176 (D. Mass), aff’d 177 F.2d 444 (1st Cir. 1949).

           Artwork on loan to a gallery is also excluded. See PLR9141014




29
Estate Tax Situs Rules

                Property Deemed to Have U.S. Situs for Estate Tax
      Stock in a U.S. corporation. See Code Section 2104(a).
          Both publicly-traded and closely-held stock have U.S. situs.
          Note: the rule is the opposite for gift tax.
      Shares of mutual funds incorporated in the U.S. See Code Section 2104(a).
          Includes money market funds.
      U.S. Partnership Interest? See Code Section 2103.
          The treatment of interests in U.S. partnerships and limited liability
           corporations are by no means clear.
          See discussion later in this presentation.




30
Estate Tax Situs Rules

                Property Deemed to Have U.S. Situs for Estate Tax
      Trust Interests
          Property owned by a NRA through a revocable trust is treated as owned by
           the grantor. See GCM 38916
          Whether or not a trust will be includible in a NRA’s U.S. estate should be
           analyzed in a manner similar to those used for U.S. citizens, that is, through
           application of Code Sections. 2033 - 2046.
          Case law holds that a NRA’s interest in an irrevocable trust should be
           considered as an interest in each asset of the trust. See CIR v. Nevius, 76 F.2d
           109 (2nd Cir. 1935).
          Just because a trust is a “foreign trust” and is not subject to U.S. income taxes
           does not preclude its assets from inclusion in the NRA’s gross estate for U.S.
           estate tax purposes.


31
Estate Tax Situs Rules

                 Property Deemed to Have U.S. Situs for Estate Tax

      Transfers Under Code Sections 2035-2038
          The “transfer sections” of the Code apply to U.S. situs interests held by NRAs
           (e.g. U.S. real estate transferred to a revocable trust)
      Debt Obligations that do not meet the “portfolio interest” exception of Code
       Section 871(h).
      Nonbank Deposits (e.g. cash in a brokerage money market account).
      Intangible Property (if enforceable against a U.S. resident)
          Patents, copyrights, goodwill, trademarks, etc.
      Right to receive payment from a U.S.-issued annuity.




32
Estate Tax Situs Rules

              Property Deemed to Have Non-U.S. Situs for Estate Tax
      Foreign Real Estate. See Treas. Reg. §20.2105-1(a)(1).
      Foreign Tangible Personal Property: physically located outside U.S. See Treas. Reg.
       §20.2105-1(a)(2).
      Life Insurance: proceeds from a policy owned by the NRA on the life of the NRA,
       issued by a U.S. carrier. See Code Sections 2104(c) (1) and 2105(a)
          Extremely powerful planning opportunity for NRAs.
          Note: cash value of a policy on the life of another individual is includible.
      Stock issued by foreign corporations.
      Shares of foreign mutual funds.




33
Estate Tax Situs Rules

              Property Deemed to Have Non-U.S. Situs for Estate Tax
      Deposits in Foreign Branches of Domestic Banks. See Code Section 2105(b)(2).
      Domestic Bank Accounts: Deposits and CDs at a U.S. bank, savings institution, or
       credit union. See Rev. Rul. 83-175, 1983-2 C.B. 109.
          Unless the interest earned is effectively connected with the conduct of a trade
           or business in the U.S. See Code Section 2105(b).
          Or, if the NRA is deemed a U.S. resident for income tax purposes.
      Caution: while accounts holding money in depository institutions (aka “banks”) are
       non-U.S. situs for estate tax, cash in a brokerage money market account is deemed
       to have U.S. situs for estate tax purposes.




34
Estate Tax Situs Rules

              Property Deemed to Have Non-U.S. Situs for Estate Tax
      Foreign Partnership Interests if not engaged in U.S. business
          See general discussion of includibility of partnership interests below.
      Code Section 871(h) Obligations: debt instrument issued by a U.S. person if the
       interest generated constitutes “portfolio interest” under 871(h)).
          Most U.S. corporate bonds and government bonds meet the portfolio interest
           exception.
          Review investments carefully under Code Section 871(h) to determine if the
           debt holdings do indeed fall under the portfolio interest exception.




35
Estate Tax Situs Rules
                                  Analyzing Partnership Interests
        The U.S. estate tax treatment of a partnership, or LLC, interest held by a NRA is not clear.
         There is no bright line rule as to whether a NRA partner would be deemed to own a pro-
         rata share of the underlying assets of the partnership or whether a partnership ownership
         would be treated as an intangible interest.
        The IRS has specifically declined to rule on the gift tax status of a partnership interest
         owned a NRA. See Rev. Proc. 99-7.
           The refusal to rule likely also extends to estate tax treatment.
        Without further guidance from the Service, ascertaining whether or not a partnership or LLC
         interest owned by a NRA is taxable in the U.S. estate becomes a matter of relying on other
         authority, such as case law.
           If a one-person LLC is classified as a corporation for U.S. income tax purposes, it is
            arguable that the interest should be treated like corporate stock for estate and gift tax
            purposes in the NRA context.
        Partnership interests owned by a NRA must be carefully considered for transfer tax
         purposes.




36
Estate Tax Situs Rules

                            Analyzing Partnership Interests
         If the Service will not provide guidance, then how about other sources of
          guidance? The judicial, regulatory and legislative history is inconsistent, with
          both the “aggregate” approach and the “entity” approach used by authorities
          to analyze NRA ownership of partnership interests.
            • Aggregate: looks a variety of factors to determine situs.
            • Entity: looks to the legal status of the entity to determine situs.

         Case law is sparse, and the lack of guidance on this issue leads to uncertainty.
          This, in turn, leads to conservative planning.



            •




37
Estate Tax Situs Rules
                              Analyzing Partnership Interests
        The seminal case in support of an aggregate approach is Sanchez v. Bowers, 70 F.2d 215
         (2nd Cir. 1934).
           In Sanchez, Judge Learned Hand held that the death of a resident and citizen
            of Cuba caused the termination of a Cuban entity in which the decedent had an
            interest (sociedad de gananciales).
           This termination, in turn caused the estate to own a proportionate share of the
            entity’s assets. It is arguable that had the entity not terminated, nothing would
            have been included in the estate.
           In dicta, however, the court suggested that the level of the entity’s activities in
            the U. S. could also be a foundation for inclusion of the assets in the estate.



               •




38
Estate Tax Situs Rules

                                Analyzing Partnership Interests


        In support of the entity theory, that a partnership or LLC interest is akin to an interest in a
         corporation and therefore inclusion in the gross estate is determined by reference to the
         status of the partnership (domestic or foreign), is Blodgett v. Silverman, 277 U. S. 1
         (1928).
        In Blodgett the Supreme Court affirmed a lower Connecticut court decision that held that a
         partnership interest was intangible property even though the partnership owned real estate.
         Since the decedent was domiciled in Connecticut at his death, a Connecticut law taxing the
         succession of all personal property of a domiciliary applied.


               •




39
Estate Taxation of NRAs

                           Deductions on NRA Estate Taxation
        Much like the estate of a U.S. citizen, a NRA’s estate is permitted to take deductions for
         expenses, losses, indebtedness, transfers for public, charitable and religious uses, and
         state death taxes. A NRA’s estate may also take a marital deduction (limited when there
         is a non-U.S. citizen surviving spouse).
        Permitted Deductions for a NRA’s estate Include:
           Deductions for expenses, losses, indebtedness and taxes. See Code Sections 2053
            and 2054.
           Charitable Deduction. See Code Section 2106(a)(2)
           Marital Deduction. See Code Section 2056A




40
Estate Taxation of NRAs
                          Deductions on NRA Estate Taxation

      Deductions for U.S. estate tax under Code Sections 2053 and 2054 are calculated
       pursuant to the ratio of the U.S. estate to the worldwide estate.
          Example: If an NRA has a world-wide estate of $1,000,000, with $250,000 of
           U.S. situs property subject to U.S. estate, and qualified expenses totaling
           $100,000, then the U.S. estate tax deduction would be limited to $100,000 x
           ($250,000 / $1,000,000) = $25,000.
          The same analysis is used for personal indebtedness in the US.
          Filing for a deduction under Code Sections 2053 or 2054 for U.S. estate tax
           requires disclosure of worldwide property on Form 706-NA.
              • Privacy issues must be balanced against the value of the deduction.
              • Higher risk of audit when deduction is taken.




41
Estate Taxation of NRAs
                     Deductions on NRA Estate Taxation

      Charitable deductions for U.S. estate tax under Code Sections
       2106(a) are limited to transfers for the exclusive use of the U.S.
       government or political subdivision, or a U.S. domestic charity.
       See Treas. Reg. §20.2106-1(a)(2).
          Executor had the power to make gifts to both U.S. and foreign
           charities. The executor chose to make gifts solely for the
           benefit of U.S. charities and claimed a deduction on Form 706-
           NA. The Service denied the charitable deduction as not
           complying with Code Section 2106(a)(2). See PLR9135003.
          Some estate tax treaties modify this rule.




42
Estate Taxation of NRAs

                         Deductions on NRA Estate Taxation
      Unlimited marital deduction is available for the estate of NRAs.
      If the surviving spouse is a U.S. citizen, the unlimited marital deduction applies.
      If the surviving spouse is not a U.S. citizen, the marital deduction can be
       claimed only for property passing to a Qualified Domestic Trust (Code Section
       2056A).
      QDOT trusts are generally extremely unfavorable to the surviving NRA spouse,
       but are the exclusive avenue to pass U.S. situs property to a non-citizen spouse
       tax-free.
          Note that surviving spouses who are legal permanent residents (green card
           holders) are still subject to the QDOT rules for the marital deduction.
          Only U.S. citizens obtain the benefits of the unlimited marital deduction
           without using a QDOT.


43
Estate Taxation of NRAs

                                      Basic QDOT Rules
      Trustee must be U.S. citizen or corporation.
          If the QDOT is over $2 million, the trustee must be a U.S. bank, or the
           individual trustee must post a bond equal to 60% of the value of the trust.
      Income can be distributed tax-free to the surviving spouse, but principal
       distributions are taxed at estate tax rates in effect at death of the decedent spouse.
          For example, if the decedent spouse died in 2007, the estate tax rates from
           that year, as applicable to the decedent’s estate, will be applied to QDOT
           distributions from principal in 2012.
      There is a hardship exception for some principal distributions that will avoid
       taxation, such as qualified medical care, or necessary support.




44
Estate Taxation of NRAs
                                     Basic QDOT Rules
      Surviving NRA spouse can convert out of QDOT if he or she later becomes a U.S.
       citizen.
      QDOTs can be formed post-mortem by surviving spouse, up to 15 months after the
       death of the decedents. Election is made on the estate tax return.
      At the death of NRA spousal beneficiary, estate tax is imposed on the property at
       the rate applicable for the estate of the first spouse to die.
      Comment on QDOTs: they are not a favorable planning tool. The restrictions on the
       surviving spouse are onerous. However, QDOTs are the only way to defer estate tax
       through a marital deduction where a NRA surviving spouse is involved. QDOTs
       should be used as a backstop for U.S. property that can not otherwise be planned
       around.




45
Estate Taxation of NRAs

                               QDOT Rules for 2010
      No QDOT election available in 2010.
         Analogous to how no marital deduction is available in 2010.
         Proper planning will allow the QDOT to “spring” in 2011 when
          QDOT elections will again be permissible.
      Non-hardship principal distributions in 2010 are still taxed at the
       estate tax rate of the date of death of the U.S. citizen spouse.
         QDOT beneficiaries do not get a break from estate tax in 2010.




46
Estate Taxation of NRAs

                      Miscellaneous Rules and Observations

      In years other than 2010, NRAs receive a step-up in basis for U.S.
       property under Code Section 1014.
      The estate of a NRA is not eligible for Code Section 2032A special use
       valuation, meaning no special deductions for working ranches or
       farms.
      In 2010, a transfer of assets from a U.S. person's estate to a
       nonresident beneficiary who is not a U.S. citizen is treated as a sale
       or exchange of the assets for fair market value. The estate must
       recognize gain to the extent the fair market value exceeds the
       decedent's basis in the assets that are transferred.


47
Gift Taxation of NRAs

                       Summary of Gift Tax Rules for NRAs
      Gifts by NRAs are subject to U.S. gift tax only if the gift is physically
       located within the United States and is one of real estate or tangible
       personal property. See Code Section 2511(a)
      Gift tax does not apply to gifts of intangible property regardless of
       where located, or gifts of property situated outside of the U.S. See
       Code Section 2501(a)(2).




48
Gift Taxation of NRAs

                   Annual Gift Tax Exclusion for NRAs
      Nonresident aliens are entitled to the applicable annual gift tax
       exclusion (currently $13,000 per year per donee) for taxable gift
       transfers.
      A transfer to a nonresident alien spouse (i.e., one that is not a U.S.
       citizen) does not qualify as a transfer made subject to the unlimited
       marital deduction for gift tax purposes. NRAs do not get benefit of
       unlimited marital deduction that applies to U.S. residents.




49
Gift Taxation of NRAs

                   Annual Gift Tax Exclusion for NRAs
      A transfer to a nonresident alien spouse is entitled to an increase in
       the applicable annual gift tax exclusion (currently $134,000 per
       year) for taxable gift transfers.
      NRAs are not allowed to “gift split” with a spouse regardless of
       whether the spouse is a U.S. resident or citizen.
      NRAs have no “unified credit,” so gifts over the applicable annual
       exclusion amounts are taxed immediately upon transfer.
      Some tax treaties address gift taxation.




50
Gift Taxation of NRAs

                       Gifts of Intangible Property
      Gift tax does not apply to any transfer of intangible property by
       NRAs.
         Unless the donor is a U.S. expatriate who lost citizenship
          within the ten-year period ending on the date of the transfer
          and who had for one of his or her principal purposes the
          avoidance of income, estate or gift tax (“the U.S. expatriate
          rule”).




51
Gift Tax Situs Rules

         Intangible Personal Property for Gift Tax Purposes
      U.S. stocks are deemed intangible property for U.S. gift tax purposes.
      Treas. Reg. §25.2511-3(b)(3) provides that irrespective of where the stock
       certificates are physically located at the time of the transfer, shares of stock
       constitute property situated outside the United States.
          Provides huge transfer opportunities for NRAs who own U.S. stocks.
          Lifetime gift transfers of stock to family members, trusts, etc. generate no
           transfer tax liability.
          Powerful estate planning tool for pre-immigration planning, and for those
           NRAs who retain non-U.S. domicile.




52
Gift Tax Situs Rules

                  Intangible Personal Property for Gift Tax Purposes

        Stock in a domestic corporation (PLR 8342106)
        Treasury Bills (PLR 8210055)
        Cash contributed to an irrevocable trust (PLR 8120030).
           This rule provides enormous planning leverage for NRAs.
        Bank deposits or obligations of which the U.S. is the primary obligor (PLR 8210055)
        At right to sue (“chose in action”) under corporate stock, bonds, notes, bank deposits,
         patents, partnership interests, goodwill, etc. (PLR7737063)
        Reminder on Partnership Interests
           Rev. Proc. 99-7 stipulates that the Service will not issue a private letter ruling on whether a
            partnership interest constitutes intangible property for NRA gift tax purposes.




53
Gift Tax Situs Rules
                                      The Trouble With Cash
        Cash is tangible personal property for NRA gift tax purposes.
        Counterintuitive: Bank deposits are not U.S. situs property for NRA estate tax purposes.
        The Service maintains that cash constitutes tangible personal property and does not qualify
         for the exception for gifts of intangible property. PLR7737706.
        Transfer of cash through a check or wire transfer by a U.S. bank does not meet an exception
         – it is personal property for NRA gift tax purposes.
        But: transfer of cash by checks drawn on a foreign bank and payable by a U.S. bank not
         subject to gift tax since that property originates outside the U.S.
        Cash and checks are tangible personal property.




54
GST Taxation of NRAs

             Basic Generation Skipping Transfer Tax Rules
      A gratuitous transfer of property from a NRA or a NRA’s estate is
       subject to generation skipping transfer tax (“GSTT”) if the transfer of
       the property is subjected to either estate tax or gift tax. GSTT applies
       to gifts to skip persons, generally grandchildren, or trusts for their
       benefit, or to individuals 37.5 years and younger than the donor.
          A NRA or a NRA’s estate is allowed the same generation-skipping
           tax exemption amount that U.S. citizens or U.S. resident aliens are
           allowed.
          In 2011, a NRA is afforded a $5 million GSTT exemption, a
           $13,000 gift tax exemption, and a $60,000 estate tax exemption.


55
GST Taxation of NRAs

                             GST Taxation: Application
      NRA makes a lifetime gift of U.S real estate to grandchild X and a lifetime gift of
       Microsoft stock to grandchild Z.
          Only the gift of real estate to X is subject to generation-skipping transfer tax
           because the gift of stock is not subject to U.S. gift taxation.
      NRA’s U.S. Will provides that separate share trusts of X and Z be created with U.S.
       real estate and Microsoft stock.
          Transfers to the trusts should receive an allocation of the NRA’s GSTT
           exemption because both the stock and the real estate are subject to U.S. estate
           taxation and are so deemed to be subject to GSTT as well.




56
Practical Estate Planning
                            Drafting Wills and Trusts in Texas
      Under Texas law, a Mexican national’s non-U.S. Will can be admitted through
       ancillary probate proceedings.
          This is costly and not a favorable approach to the disposition of Texas property.
      A Mexican national may execute a Texas Will to dispose of Texas property at death.
       A valid Texas Will works for a Mexican national decedent just as it does for a native
       of Texas.
          There is no forced heirship in Mexico. In many other civil code jurisdictions,
           such as France, U.S. estate planning documents can be challenged. Mexican
           testators can choose their own devisees.
          All formalities of a Texas Will apply, so if a Will to be admitted to court is
           executed outside the United States, then an apostille from a Mexican notario is
           required for the testator’s signature in Mexico.


57
Practical Estate Planning
                            Drafting Wills and Trusts in Texas
      A Mexican national may establish a revocable management trust to control and to
       title property with Texas situs.
      A Texas revocable management trust is a favored vehicle for Mexican nationals:
          Property titled in the name of the trust passes privately.
          A management trust provides for transfer on death of securities accounts where
           Patriot Act or compliance issues preclude pay on death account designation.
          Passes property in accordance with the NRA’s desires.
          Provides for management of Texas property if the NRA is incapacitated.
          Can incorporate significant tax-motivated testamentary planning.
          Enforceable if the property or account is reachable by a Texas court.



58
Practical Estate Planning
                           Drafting Wills and Trusts in Texas
      Mexican nationals who visit Texas frequently should execute Medical Powers of
       Attorney, a Medical Directive and a Durable Statutory Power of Attorney.
          Name agents to direct financial decisions and medical care in the event of
           incapacitation.
          Institutions are bound to honor the wishes of the principal, even if agents are
           domiciled across the border.
      Coordination between U.S. and Mexican advisors is critical for all aspects of NRA
       estate planning.
          Brokers, CPAs, attorneys, business partners, and families should comprehend
           and commonly execute cross-border estate planning strategies.




59
Practical Estate Planning
                               Marital Property Characterization
        Mexican nationals married in Mexico may elect to characterize marital property as community
         or separate property
           Separate property characterization is most common.
           For U.S. estate tax purposes, if not subsequently modified, the original characterization of
            marital property shall apply.

               • Decedent acquired 50,000 shares Citigroup stock. He was married to his wife under
                 a separate property regime. The couple lived in a community property regime for 30
                 years prior to the NRA’s death. The Service successfully argued that the marital
                 property characterization laws of the country of marriage applied. See Estate of
                 Charania, 133 T.C. No.7 (9/14/2009)

           Characterization of property by Mexican national clients is a critical consideration for
            estate planning purposes.



60
Practical Estate Planning
                       The Problem With Real Property

      In 2011 a NRA will be able to pass $60,000 of U.S. situs property
       without incurring estate tax. Real property in the U.S. is deemed to
       be in the U.S. estate of a NRA.
         NRA clients who own virtually any real estate in San Antonio in
          their own name are likely subject to U.S. estate tax.
         Most Mexican nationals are completely unaware that the
          purchase of their U.S. home includes the purchase of estate tax
          liability.




61
Practical Estate Planning
                                The Problem With Real Property
        Use of Corporate Structures to Own U.S. Real Property
           Offshore corporate structures are often characterized as a solution – sometimes the only solution -
            to the tax issues that apply to NRA ownership of U.S. real property.
           Competing tax interests: structures useful for estate tax purposes may have negative income tax
            implications if the property is sold before death, or if the real property generates income.
           Offshore corporate structures carry with them significant issues that client and advisors should not
            ignore:
               • If the NRA lives in the home for free, the foreign corporation could have imputed income.
               • For example: at death, there is no step-up in basis of real property owned by the foreign
                 corporation.
               • Consider also U.S. heirs, who will inherit a controlled foreign corporation.

           Offshore corporate structures are powerful and valuable tools, especially in business and
            investment planning. NRAs need to be apprised of all the tax issues involved in their use.




62
Practical Estate Planning
                           The Problem With Real Property
      Use of Trusts to Own U.S. Real Property
          A revocable grantor trust (i.e. a “living trust” of which the grantor is also the
           trustee), can provide non-probate transfer of U.S. real property, but it provides
           no tax advantages.
          An irrevocable trust in which the grantor does not retain any controlling
           interests that would cause the trust to be includible in his or her estate can be
           used to buy U.S. real estate. At death, real estate in the trust passes free of
           estate taxation.

             • Recall that for gift tax purposes NRAs can make tax-free gift transfers of
               various types of property.




63
Practical Estate Planning
                       The Problem With Real Property
      FIRPTA
         When NRA sells U.S. real property the buyer is required to withhold
          10% of the purchase price under the 1980 Foreign Investment in Real
          Property Tax Act (FIRPTA).
            • The 10% withholding tax is on the amount realized – not gain.
            • Exemption for residential property that’s valued at $300,000 or less. Home needs to be sold
              to a buyer who will use it as a primary residence.
            • While the title company should this and forward the withholding to the IRS, the NRA buyer
              must maintain records because when the real property is subsequently sold, the NRA must
              compute gain under FIRPTA, and establish that he has no outstanding withholding liability.
            • If FIRPTA records from the initial purchase are lost, the NRA may not be able to
              consummate a later sale. Mexican nationals buying homes in Texas must retain all
              paperwork from the closing and assure that the seller has executed the proper FIRPTA
              affidavit.




64
Practical Estate Planning
                                          The Problem With Real Property
        FIRPTA
           Under FIRPTA, NRAs are subject to tax on gains from sale or exchange of U.S. real property
            interests.
                  •   A NRA can qualify for the $250,000 capital gains tax exclusion on the sale of a “principal residence,” however
                      note that so filing could be a factor in determining if the NRA is a resident or domiciliary for U.S. tax law.

                  •   Note that the $500,000 exclusion for married couples is unavailable for NRAs because they cannot file jointly. If
                      both own an interest in the home, each must claim the exclusion individually.

             To recoup the 10% withholding tax on sale of real estate, or claim it as a credit against capital gains tax owed,
              the NRA seller must file a 1040NR.
             Can file for a “withholding certificate” in certain circumstances that will reduce or eliminate the withholding
              requirement. Be cautious that the requirements of the certificate do not subject the NRA to U.S. residency status
              for income tax purposes, or domicile for estate tax purposes.
             In effect, the FIRPTA withholding tax is an enforcement mechanism to get NRAs to file income tax returns.




65
Practical Estate Planning
                        The Problem With Real Property
      Tax residence issues
         Simply owning a home in the U.S. does not impute residency for
          income tax purposes or domicile for estate tax purposes.
         However, ownership of a U.S. home can be the tiebreaker in
          determining residence for income tax purposes under both the
          “closer connections” test, as well as tie-breaking provisions of
          income tax treaties.




66
Practical Estate Planning
                                The Problem With Real Property
        Gift Tax Issues
           NRA buyers sometimes purchase homes for relatives. Frequently, the NRA will buy a
            home for a relative who is a student in the U.S.
               • Example: Mexican national purchases an Austin condo for his daughter to live in
                 while attending UT. This gift of real property in the U.S. is subject to U.S. gift tax.

           Gifts of offshore cash are not subject to gift tax, so NRA buyers can fund an account for
            the donee, who can then purchase the home in his or her own name.
               • This strategy has been attacked by the Service, which maintains that “parking” cash
                 for a subsequent purchase that would otherwise be subject to gift tax is improper.
                 See De Goldschmidt – Rothschild v. Commissioner, 168 F.2d 975 (2d Cir. 1984)
                 and Davies v. Commissioner, 40 T.C. 525 (1963), acq. In result 1966-2 C.B. 4
                 (1966)




67
Practical Estate Planning
                          The Problem With Real Property
      Gift Tax Issues
          NRA couples must be aware of the cap on gifts of U.S. property between
           spouses.
          Common example:

             • Mexican national husband, married under a separate property regime in
               Mexico, purchases a U.S. home in his own name. The NRA spouse then
               requests that she be put on the deed.
             • The annual exclusion for gifts of U.S. property to a NRA spouse is
               $136,000 in 2011 (indexed).
             • If the gifted interest in the home is over this amount, then the NRA has
               incurred gift tax liability for transferring a portion of the home to his
               spouse.


68
Practical Estate Planning
                                                   Foreign Trusts
        Characterization of a trust as a foreign trust or a domestic trust for income tax purposes has
         nothing to do with the nationality of the settlor or the beneficiaries. Rather, it is the location
         and power of the trustee that controls.
           Definition of a Domestic Trust: A trust is a domestic trust if:
                • a U.S. court is able to exercise primary jurisdiction over its administration (the “Court Test”) and
                • one or more U.S. persons can control all substantial decisions of the trust (the “Control Test”).

           Definition of a Foreign Trust:
                • A foreign trust is any trust that is not a domestic trust.

        If a grantor trust is a likely trust for income tax purposes and holds U.S. situs property, then
         that property is subject to inclusion in the NRA’s U.S. estate. Unless the foreign trust is an
         irrevocable nongrantor trust, with no retained interests, then U.S. property held by the trust
         is likely includible in the NRA’s U.S. estate.




69
Practical Estate Planning
                                Pre-Immigration Planning Tips
       If a NRA is planning on becoming a U.S. resident in the near future, then the following steps
       should be considered:
         Make gifts: the pre-immigrant should make irrevocable gifts to non-U.S. persons outright, or in a
          trust with only non-U.S. beneficiaries. This removes worldwide property that would otherwise be
          includible in the estate after domicile is established.
         Make more gifts: transfer property to trusts for U.S. beneficiaries, thereby precluding later GST,
          estate, and gift taxation. Trusts for U.S. beneficiaries should be U.S. trusts.
         Create a irrevocable discretionary trust: for the benefit of the pre-immigrant and his family. While
          this will be a grantor trust for income tax purposes, the property will be immune from creditors
          claims, and will move property out of the pre-immigrant’s estate.
         Liquidate appreciated assets: the pre-immigrant should consider selling all appreciated securities
          prior to establishing residency, and then re-invest once U.S. domicile is obtained. This strategy
          dramatically reduces unrealized gains and subsequent taxes due on sale.
         Make gifts between spouses: since there is a cap on gifts between spouses, they should make gifts
          of non-U.S. property between themselves prior to establishing residency.




70
Practical Estate Planning

                                   “Executor” Beware
      Code Section 2002 provides that U.S. estate tax shall be paid by the executor. The
       term “executor” means either the personal representative of the estate as
       appointed by a court or trust instrument, or if none, then any person in actual or
       constructive possession of any property of the decedent. See Code Section 2203.
      Financial institutions with NRA clients need to be aware that they can be deemed
       the “statutory executor” of NRA clients and therefore all of the obligations to file the
       Form 706-NA, and the associated personal liability can adhere.
      Financial institutions should counsel clients on the use of a revocable trust or Will
       to dispose of account property at death if the institution does not offer Pay on
       Death accounts for NRA clients.




71
Practical Estate Planning
                                         The Exit Tax
     If a long-term resident desires to change domicile and thus be free of the U.S. transfer tax
      system, there are numerous hurdles. A “long-term resident” is non-U.S. citizen who is a
      lawful permanent residence for 8 years or more during the 15-year period before residency
      ends.
     If a long-term resident leaves the U.S. tax system after June 16, 2008, then he is deemed to
      have sold all his worldwide property for fair market value the day before leaving the U.S.
      This “mark to market” regime is articulated in Code Section 877A. See Notice 2009-85 for
      recent modifications passed in Section 301 of the Heroes Earnings Assistance and Relief Tax
      Act of 2008.
     In essence, if a green card holder resides in the U.S. for 8 years, then if he decides to leave
      the “exit tax” is triggered and capital gains are owed, without any relief from other parts of
      the tax code.
        Exception: if the long term resident has less than $600,000 of income from the deemed
         sale of assets, no exit tax is assessed.




72
Practical Estate Planning

                                              Examples
     NRA owns a brokerage account at a Texas financial institution. The account holds non-U.S.
     stocks, U.S. bonds meeting portfolio interest exception, and mutual fund shares issued by a
     foreign investment management firm.
           There are no U.S. situs assets, so no estate tax issue.
           If a financial account is invested properly, U.S. estate tax can be avoided easily.
           What if the account does not allow POD because of Patriot Act/KYC rules and internal
            compliance?
           What if the NRA wants to control the property after death in a trust?
           The NRA can create a revocable management trust to transfer the property to
            beneficiaries at death. A NRA can create dynasty trusts at death to benefit a spouse,
            children and grandchildren.




73
Practical Estate Planning

                                        Examples
     Mexican client holds a green card. He has a home in the Stone Oak. It is in his own
     name. His wife is also a legal permanent resident, as are his children. The house is
     valued at $1.0 million.
       Assure that the husband’s revocable management trust contains a provision
        whereby the marital deduction gift passes to a QDOT. Without this trust, there is a
        large estate tax issue.
       What happens at the death of the surviving spouse? Estate tax will be due.
       How do you cover the estate tax bill? Insurance can be used as a wealth
        replacement tool, but note because this client holds a green card, it may be
        includible in his estate.
       Arguing that a green card holder is a non-domiciliary for transfer tax purposes is
        possible, but good facts are a must.



74
Ejemplos
     Un mexicano es residente estadounidense. Tiene una casa en Stone Oak bajo su nombre. Su esposa también es residente
     legal así como sus hijos. Su casa está valuada en $1 millón.

     • Asegurarse de que el fideicomiso revocable del esposo contenga una provisión en donde el donativo
     por deducción “marital” (matrimonial) pasa a un QDOT. Sin este fideicomiso habría un impuesto de deceso.

     • Qué pasa cuando muere el conyugue sobreviviente? El impuesto por sucesión se tiene que pagar.

     • Como se cubre este impuesto de sucesión?

     • Un seguro de vida puede ser utilizado como una herramienta de reemplazo de la riqueza, pero tenga en cuenta porque
     este cliente tiene una tarjeta verde, probablemente serán incluidos en su finca.




       47


75
Practical Estate Planning

                                            Examples
     Mexican national client who is a nonresident for transfer tax purposes inquires about making
     gifts to his daughter. What are the tax issues involved in making gifts?
           If a family from Monterrey drives to the United States, and the father buys a $50,000
            sapphire necklace at La Cantera, and then gives it to his daughter at dinner at
            Wildfish, that gift is subject to gift tax.
           Father withdraws $20,000 in cash in San Antonio, and gives it to daughter at the
            Riverwalk. That gift is subject to gift tax.
           Father withdraws $20,000 in cash at a San Antonio bank, drives to Reynosa and gives
            it to daughter. Not subject to gift tax because gift did not take place in the U.S.




76
Ejemplos
     Un mexicano que no es residente para efectos de transferencia de impuestos, quiere hacer un donativo a
     su hija. Cuáles son las implicaciones fiscales asociadas a donativos?

     • Si una familia de Monterrey viene de visita a Estados Unidos y el padre de familia le compra un collar
     de perlas a su hija por $50,000 dólares en La Cantera para posteriormente regalárselo a la hora de la
     cena en San Antonio, este regalo está sujeto a un impuesto.

     • El padre de familia retira $20,000 dólares de su cuenta bancaria americana y se los regala a su hija en
     Riverwalk. También está sujeto a un impuesto.

     • El padre de familia retira $20,000 dólares de su cuenta bancaria americana y regresa a Reynosa,
     Tamps, donde le regala los $20,000 dólares a su hija. Este regalo NO está sujeto a impuesto, dado que el
     donativo se hizo fuera de Estados Unidos.




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Practical Estate Planning

                                            Examples
     Gift tax treatment and estate tax treatment of the same asset is different. Consider depository
     bank accounts:
          A check for $120,000 that is drawn on a U.S. bank account by a Mexican father, that
           then is given to a son in San Antonio over dinner at Wildfish. This is a taxable gift
           under the Code.
          But the U.S. bank account is not includible in the father’s U.S. estate for estate tax
           purposes! He can give it away at death without any tax being due.
          Wire transfers from U.S. banks are treated the same as cash or checks. Mexican
           nationals should fund cash gifts with an offshore bank account.
          Note: if the recipient of the gift is a U.S. tax payer, then any gifts of $100,000 or
           above must be reported to the IRS. No tax is due, but failure to report results in a
           penalty of 5% of the gift for each month of failing to report, up to 25% of the value of
           the gift.



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Ejemplos
     El impuesto de donación y el impuesto de sucesión de un mismo activo son diferentes, debe considerar cuentas
     bancarias de depósitos:

     • Un cheque de $120,000 es girado por un padre de familia mexicano de su cuenta bancaria estadounidense como
     regalo para su hijo en una cena en San Antonio. Este donativo está reconocido como un donativo gravable bajo el
     código fiscal americano.

     • Esta cuenta bancaria estadounidense no está considerada como parte del patrimonio del padre de familia para el
     tema de impuestos de sucesión! El padre de familia puede donarla libre de impuestos a su deceso.

     • Las transferencias electrónicas de bancos americanos tienen el mismo trato fiscal que los cheques y/o dinero en
     efectivo. Los mexicanos deben traspasar donativos por medio de una cuenta bancaria domiciliada fuera de los
     Estados Unidos.

     • Nota: Si la persona que recibe el donativo es considerado un residente americano (que paga impuestos
     americanos), entonces cualquier donativo de más de $100,000 tiene que ser reportado al IRS. No existe algún
     impuesto, pero de no ser reportado al IRS seria sujeto a una penalidad del 5% del valor del donativo por cada
     mes que pase sin reportarlo, hasta un máximo del 25% del valor del donativo.




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