New U.S. Tax Law Leaves Non-U.S. Person Estate Tax Intact
Prior to the passage of the Trump Administration's new tax bill, many had speculated on two key possible impacts for non-U.S. person private wealth bank and brokerage clients—the elimination of the estate tax exemption disparity between non-U.S. and U.S. persons, and the elimination of the estate tax itself, which could have eliminated a long-standing reason to use offshore structures.
On December 22, 2017, Public Law 115‑97 ("Tax Cuts and Jobs Act") was enacted amending the estate tax for U.S. persons only. Sections 2010 and 2001, both of which apply to estates of citizens or residents, did not alter taxes imposed on the estates of nonresidents who are not U.S. citizens who hold U.S. situs assets. Under Section 2010, the basic exclusion amount for estates of resident or citizen decedents dying after December 31, 2017, and before January 1, 2026, is increased from $5 million to $10 million. But I.R.C. Sections 2101-2108 which pertain to the "Estates of Non-Residents Not Citizens," were not amended. Accordingly, the tax imposed on the transfer of the taxable estate of decedent nonresidents who are not U.S. citizens remains subject to a minimum basic exclusion of only $60,000.
Given the continuing taxation upon death of U.S. situs assets for those private wealth clients, care is urged in planning how those assets are held, including appropriate consideration of offshore personal investment structures that may live in perpetuity.
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