U.S. Estate Tax Repeal Also Benefits Foreign Persons
Generally, persons domiciled in the United States at death (U.S. domiciliaries) are subjected to an estate tax on the value of the person's worldwide assets. Similarly, persons who are not domiciled in the United States at death, but who own United States situs property (foreign domiciliaries) are subjected to estate tax. This article provides an overview of the United States federal estate, gift, and generation-skipping transfer tax laws as they apply to foreign and international clients.
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001) reduced the maximum estate tax rates (from a high of 55 percent in 2001 to a high of 45 percent in 2009) and raised the exemption amount (from $675,000 in 2001 to $3.5 million in 2009) for U.S. decedents. When enacted, EGTRRA had a sunset provision, which became effective as of January 1, 2010, providing for suspension of the estate tax in 2010 and reinstatement at 2001 levels in 2011.
Although all domiciliaries, whether U.S. or foreign, are exempt from the U.S. estate tax during 2010, the authors conclude that the year may not be quite the panacea many believe. The repeal from estate tax does not apply unless someone dies, and then their heirs must deal with carryover basis. The gift tax remains in effect, albeit with a 10 percent savings in the tax rate. Then in 2011, the rules from 2001 resume. While many believe Congress will raise the estate tax exemption and reduce the estate tax rate, it is likely these changes will not benefit foreign domiciliaries. To read the full article, please click on the link below.