A Non-U.S. Person who holds U.S. situs assets directly or indirectly through a U.S. tax transparent structure could be exposed to U.S. estate tax, if the fair market value of the U.S. situs assets exceeds USD 60.000 at the date of death (a tax treaty could provide additional relief). The remaining value of the U.S. situs assets of the deceased, that exceeds this threshold, will be subject to graduated Federal Estate Tax rates up to 40%. State transfer taxes may apply depending on the state where the U.S. situs asset is located. Furthermore, the executor of the estate will be obliged to submit the complex “Form 706-NA” to the Internal Revenue service (IRS) within 9 months of the decedent’s date of death. Upon review and certification of the Estate Tax Return, the IRS will issue a Federal Transfer Tax Certificate, which will allow financial institutions holding the decedents U.S. situs assets to transfer ownership to the designated beneficiary.
What are U.S. Situs Assets?
Property located in or having a connection to the U.S. The list below is not exhaustive and an in-depth analysis may be required for individual circumstances.
U.S. Situs Assets:
|Shares of U.S. publicly and privately held companies regardless of the location of where the stock certificates are held|
|2)||U.S. brokerage accounts|
|3)||U.S. real estate|
|4)||Shares in a U.S. registered investment fund (“RIC”) including mutual funds or, mutual funds organized in corporate form if incorporated in the U.S. (to the extent that the mutual fund assets are U.S. situs)|
|5)||Tangible personal property (art, jewelry, automobiles)|
|6)||Physical currency located in a U.S. bank account or safety deposit box|
|7)||Certain debts owing by a U.S. debtor|
|8)||Interest in a U.S. Partnership – this is a grey area and depends on a variety of facts and circumstances. An in-depth analysis is required.|
Non U.S. Situs Assets:
|9)||U.S. bank deposits not effectively connected with a business in the U.S.|
|10)||Certificate of deposits with a U.S. bank|
|11)||Non-U.S. real estate|
|12)||Shares in Non-U.S. corporations|
|13)||Proceeds of a life insurance policy issued by a U.S. insurance company|
Estate Tax Treaties:
Currently, the U.S. has 15 estate tax treaties with various countries around the world. One of these treaties is with Switzerland. The treaty is applied on a case-by-case basis and may provide a positive impact on the final U.S. estate tax liability and in most cases be significantly higher than the original $60,000 exemption.
Transfer Certificates For Financial Institutions:
The Federal Transfer Tax Certificate is required to allow ownership of U.S. Situs assets to be transferred to the relevant beneficiaries of the estate. All financial institutions holding assets of a decedent require a transfer certificate from the IRS before releasing the assets of a decedent to a beneficiary. If beneficiaries have received assets from the decedent’s estate and no transfer certificate is issued, then the beneficiary will become personally liable for the unpaid transfer taxes when the asset is transferred to another person.
A large majority of private individuals, asset management firms, wealth managers and executors of foreign estates are completely unaware of this potential U.S. estate tax exposure and associated filing requirements. Deloitte, with its team of accomplished U.S. tax professionals, can provide a holistic approach to an individual’s specific set of circumstances and help mitigate U.S. Estate exposure with the appropriate planning. In addition, Deloitte can assist executors of foreign estates with filing the required Form 706-NA and obtaining the required Transfer Certificate from the IRS.
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