Monday, March 14, 2011

You Don't Have to be American to Fear the Tax Man.

As Ronald Reagan said, “If it moves, tax it.” This statement is no more appropriate than in the case of those who make movement between nations a way of life. Obviously, American citizens have to deal with estate taxes, or at least know whether their estate isn't big enough to have to pay taxes. However, as a recent article on the Wall Street Journal reminds us, even non-citizens... and, in fact, non-residents may have to be concerned with US estate taxes.

Non-resident, non-citizen decedents, who have real property, personal property or securities located in the United States are liable for estate tax for those assets if the total fair market value of the assets located in the US exceeds $60,000.00. This is unlike American citizens or residents who are liable for their worldwide estate. In fact, if the decedent made significant gifts during their lifetime, that $60,000.00 exclusion could be even lower.

However, that doesn't mean that every non-resident, non-citizen whose US assets exceed $60,000.00 will have tax due. Tax treaties may reduce the amount owed. For example, if you are a German national, the 1998 Protocol Between the US and Germany amending the 1980 tax treaty allows for an exemption equal to the greater of the ratio of property situated in the United States included in gross estate to property included in gross estate wherever situated times the unified credit allowed for citizens in that year or the $13,000 credit allowed to all non-resident non-citizens. The IRS has a handy link to the current tax treaties in force.

If you are a foreign national with American assets, speak to an attorney versed in US estate tax and international tax treaties to determine how you may be affected.