The Long Arm Of The Estate Tax Law – “Brad Pitt Plays Golf with Aliens”

The Long Arm Of The Estate Tax Law – “Brad Pitt Plays Golf with Aliens”

Thank goodness for grocery store tabloids! They report news weeks before a story even breaks in the mainstream media.  And for a time, it seemed almost impossible to get through the checkout line without perusing at least one front-page article about some celebrity’s close encounter of the third kind.

But as planners we are more often concerned with aliens of a different kind.

The global marketplace makes international lives and transactions increasingly common, and the federal estate tax law waxes broad in its reach when foreign taxpayers or foreign soil come into play.

Three basic premises of the extent of domestic transfer taxation are always a little surprising to first-time listeners:

    1. Even if a person does not live in the U.S. and has never been in the country, all property located within our boundaries (and even some that is not) could be subject to federal estate taxation.  Not too surprising.
    2. If a U.S. citizen passes away, foreign residence notwithstanding, all that they own everywhere in the world can be includible in their federal taxable estate.  Kind of surprising, right?
    3. When a resident alien passes away, all of his or her property worldwide could be subject to federal estate taxation.  Now that’s an eye-opener!

Things are a little more complicated, but not much better, when it comes to applying the federal gift tax to transfers by a taxpayer in one of these three categories.  And issues become more confusing when a marriage is involved and the spouses fall into different categories.

Ultimately an alien client, or a client who is a U.S. citizen but who has foreign property, is going to need competent counsel to guide them through the difficult issues of taxation that apply to non-citizenry or non-domestic property.  But it is helpful as an insurance planner to have a familiarity with the general principles.

Call with any questions that might arise here or with other planning matters.