US estate and gift taxation of resident aliens and nonresident aliens

US estate and gift tax rules for resident and nonresident aliens US estate and gift tax rules for resident and nonresident aliensCopyright © 2022 Deloitte Development LLC. All rights reserved.2Understand the potential tax implications? This publication answers the questions we hear most often from non-US citizens who live, work, or own property in the United States.Resident and nonresident aliens may be in the US indefinitely, for a long-term stay, or for a short-term assignment. Upon their death, however, their estates may face adverse US estate tax consequences without careful planning. Likewise, lifetime transfers by non-US citizens may be subject to US gift tax.ContentResidency and domicile considerations2US estate and gift taxes4Generation-skipping transfer tax facts8Thinking ahead9 US estate and gift tax rules for resident and nonresident aliensCopyright © 2022 Deloitte Development LLC. All rights reserved.3Since 2018, US citizens and US domiciliaries have been subject to estate and gift taxation at a maximum tax rate of 40% with an exemption amount of $10 million, indexed for inflation. The indexed exemption amount for 2022 is $12,060,000. In contrast, non-US domiciliaries are subject to US estate and gift taxation with respect to certain types of US assets, also at a maximum tax rate of 40% but with an exemption of $60,000, which is only available for transfers at death.Green card statusObtaining a green card is one way to establish US residency. Having a green card may allow for easier travel into and out of the country and may allo w you to remain in the US indefinitely. However, holding a green card subjects you to US income tax on your worldwide income during the entire time that you hold the green card (even if you are living outside the US), and it is one factor considered when determining whether you are a US domiciliary. An individual who is considered domiciled in the US for estate and gift tax purposes is subject to US estate and gift tax on worldwide assets.Surrendering your green card will cause you to be considered a nonresident alien for US income tax purposes. This status assignment is based upon the assumption that you do not spend substantial time in the US after surrendering your green card, in which case you may become a US resident under the “substantial presence” test. Upon surrendering your green card, you will need to consider whether you are subject to the US expatriation tax or “exit tax.”Residency and domicile considerationsThe substantial presence testIt is recommended that you retain records regarding your days inside and outside the US to support whether or not you meet the substantial presence test. The IRS defines substantial presence as being physically present in the United States on at least:•31 days during the current year, and•183 days during the 3-year period that includes the current year and the 2 years immediately precedingthe current year, by adding together the following:−All the days you were present in the US in the current year, and−1/3 of the days you were present in the US in the first year before the current year, and−1/6 of the days you were present in the US in the second year before the current year. US estate and gift tax rules for resident and nonresident aliensCopyright © 2022 Deloitte Development LLC. All rights reserved.4Qualifying as a US domiciliaryResidency and domicile considerationsA person is considered to be domiciled in the US for estate and gift tax purposes if he or she lives in the US and has no present intention of leaving. Determining domicile for US estate and gift tax purposes is different than determining US income tax residence (see page 2). Thus, you may be a resident for income tax purposes, but not US domiciled for estate and gift tax purposes.Facts and circumstances testTo determine whether you are a US domiciliary, the following factors are considered:•Statement of intent (in visa applications, tax returns, will, etc.)•Length of US residence•Green card status•Style of living in the US and abroad•Ties to former country•Country of citizenship•Location of business interests•Places where club and church affiliations, voting registration, and driver licenses aremaintainedA person is considered a non-US domiciliary for estate and gift tax purposes if he or she is not considered a domiciliary under the facts and circumstances test described above. It is possible that two or more countries will consider the same person a domiciliary, and/or that certain assets may be subject to estate or gift tax in more than one country.Determining domicile for US estate and gift tax purposes is different than determining US income tax residence.TIP: Consult with a tax professional regarding your US domicile status.It is important to consult with an international estate planning professional to determine your potential US estate tax exposure, to eliminate or reduce double taxation, and to plan appropriately. US estate and gift tax rules for resid