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Christopher Phelps
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience:  CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
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Estate tax question for resident alien

Resolved Question:

I am a US permanent resident (green card holder) for 30 years but am a British citizen, my husband and daughter are US citizens. My parents live in this country and have recently become American citizens becasue they believed they needed to do so becasue of the estate tax laws. My question is: 1. When my parents pass away and I inherit their estate (as only child) will I have any disadvantages in being a non-US citizen - does the estate tax exclusion of $2 million apply to a resident alien? 2. If I pass away and my spouse inherits our estate (our house is in my name only) will their be higher estate taxes as I am not a citizen? Thanks you for your help. I have read many article on the web but cannot find a satisfactory answer.
Submitted: 11 years ago.
Category: Tax
Expert:  Christopher Phelps replied 11 years ago.

The estate tax is imposed on the transfer of the "taxable estate" of every decedent who is a citizen or resident of the United States. Accordingly, assuming you meet the domicile residence analysis test, you will be subject to the same estate tax rules on your world-wide assets the same as a U.S. citizen. Since your parents are now naturalized U.S. citizens, they are also subject to the same rules.

Thus, both you and your parents are entitled to the current $2,000,000 exemption, however, while your parents are entitled to the benefits of the Sec. 2056 marital deduction (i.e. assets passing from the decedent spouse to the surviving spouse are not subject to estate tax) you as a resident, non-citizen are not. If your spouse's estate exceeds $2,100,000 (i.e. amounts transferred to a resident, non-citizen spouse in excess of $100k are not eligible for the marital deduction), then that excess will be subject to estate tax on his death unless you implement a qualified domestic trust (QDOT).

Generally, this trust requires at least one trustee to be a U.S. citizen or corporation who will be responsible for ensuring that all taxes due are paid prior to any assets leaving the country. The trust must authorize the trustee to withhold all required taxes from any distributions. Also, only income may be distributed unless the trustee withholds the requisite taxes from any principal distributed. Finally, the trust must be sited and administered under the laws of one of the 50 states or D.C.

Conversely, any assets you leave to your U.S. citizen spouse will be eligible for the marital deduction. So the only event you really have to plan for is if your husband pre-deceases you and transfers assets in excess of $2,100,000 to you.

Because it is impossible for me to identify and consider ALL the relevant facts, this advice is not intended or written to be used for the purpose of avoiding penalties, and cannot be used for that purpose.

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Expert:  Christopher Phelps replied 11 years ago.

If you need additional information or have another question please let me know. I would also appreciate it if you would come back and hit the accept button.

Thanks for using the website.