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My parents - father (non-US citizen living abroad) and mother

(a US citizen living abroad)...
My parents - father (non-US citizen living abroad) and mother (a US citizen living abroad) have a real estate and some cash in the bank both here in the US. Both the real estate and cash are under both of their names. They would like to transfer them to me, their son (a US citizen living in the US). They had thought of using the lifetime gift tax exemption law to gift them to me. They have also thought of using the annual gift tax exemption amount to transfer the funds and the real estate to me over a few years. They had also thought of keeping them under their names until they pass. We were trying to get our heads around the gifting and estate tax laws, but we became confused with the citizen, non-citizen part. What do we need to be concerned with and what would be the best way to handle this transfer? I apologize for the broad stroke question.
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Answered in 1 minute by:
7/22/2013
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,847
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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NPVAdvisor :

Hi,'

Customer:

hi

Customer:

not sure how this works. Am I waiting for an answer?

NPVAdvisor :

Because your parents are both Non- citizens and non-residents and because we are talking about TRANSFER taxes here (rather than determining wheher they may need to pay income tax on earnings, this is actually very straightforward

NPVAdvisor :

yes, sorry ... was trying to get all the out

NPVAdvisor :

you have the right idea in that this caould be done via the lifetime gift exclusion OR through annual gifting

Customer:

What does that mean - transfer taxes....btw, my father is a non-citizen but my mother is a US citizen. They both live abroad now. I'm a US citizen that lives in the US. The property and the cash are both here in the US.

NPVAdvisor :

I see that

NPVAdvisor :

gist and estate taxes are TRANSFER taxes.... taxes charged when ownership is transferred through gift (or through that last big gift, transfer of the estate when someone dies)

NPVAdvisor :

sorry for the typos "Gifts" and estate taxes ...

Customer:

Oh. I see. So the gift tax exclusion (lifetime or annual) is applicable to a non-US citizen gifting to a US citizen?

Customer:

I thought that non-citizens cannot gift without being taxed.

NPVAdvisor :

OK 1st thing to understand: The receiver of the gift is not responsible for the tax ... the GIVER or DECEDENT's estate pays the tax

Customer:

aha.

NPVAdvisor :

so the exemption DOES affect you, in that it might become smaller after taxes are paid by the estate, but YOU are never responaible for the tax

Customer:

I see

NPVAdvisor :

Now, the gift and estate system is a unified system... that means....

NPVAdvisor :

there is a $5,250,000 exemption for every person

Customer:

even if that giver is a non-citizen living abroad...

NPVAdvisor :

SO, if I give you 2,000,000 during life

NPVAdvisor :

Ican still give you 3,250,000 from my estate at death, before there are any taxes levied againast it

Customer:

I see

NPVAdvisor :

OK, for the NON citizen, that person will be uinder the jurisdiction fo whatever county he has residency in

NPVAdvisor :

As far as the US is concerned, there ae NO taxes there

Customer:

oh

NPVAdvisor :

you don't pay bevauuse you're the receiver.... and he doesn't pay becasue that's betwee him and his country

Customer:

even if the property is here in the US

NPVAdvisor :

he MAY have gift taxes to pay there (in MANY countries the gift taxes ARE borne by the giver)

NPVAdvisor :

That's right .... we are talking about transfr of ownership

Customer:

Yes. I understand

NPVAdvisor :

NOw, he may have some INCOME taxes to pay on interest, because the dollars are here

NPVAdvisor :

but estate and gift taxes are a whole different system

NPVAdvisor :

transfer, not income

NPVAdvisor :

You Mother, as a US citized has the 5,250,000 exemption

Customer:

So, if under 5.25 million, they can transfer the gifts - property and cash - to me

Customer:

without any tax ramifications

NPVAdvisor :

and, by the way, that is slated to go up .... it's 5,250,000 if she were to die today

NPVAdvisor :

that's correct .... and depending on large the estate still left at death is, it may make some of the estate taxable at death

NPVAdvisor :

remember it's unified estate and gift tax

NPVAdvisor :

whatever is given during life subtracts from the eventual estate tax exemption at death

Customer:

aha

NPVAdvisor :

the annual increase in that number was made permanent as part of the lat tax act

Customer:

I am not 100% on the income tax part. are you talking about the increase in value of the property?

NPVAdvisor :

now.... the annual exclusion ... (again, doesn't apply to Dad) he can giver you all e wasnt (so in effect if the accounts are jointly, only your mother's half is a gift that we need to worry about)

NPVAdvisor :

ok back to income

NPVAdvisor :

in the INCOME tax system ... US citizend are supposed to pay tax on income (earned income, interest, dividends) no matter where that is earned .... RESIDENT ALIENS as well with soe exceptions... but your father, for example... only has to pay income taxes to US on dollars that are called US source income

Customer:

ok

NPVAdvisor :

For your father....?

NPVAdvisor :

Maybe some interest income on the bank account

NPVAdvisor :

or if he has real estate property here and sells it for a gain

NPVAdvisor :

that's income

NPVAdvisor :

But we're talking about gifts and estates.... transfer taxes

Customer:

I see

NPVAdvisor :

now.... the annual exclusion?

Customer:

ok

NPVAdvisor :

each year your mother (again your dad with have to deal with those in his country of citizenship) can give you (and anyone ELSE she wants) 14,000 per year

NPVAdvisor :

and it's COMPLETELY excluded ....(doesn't even go toward that accumulation towards the estate exclusion)

Customer:

I see, the annual is separate from the lifetime. And my father can give all he wants without paying taxes at all....except maybe in his country. But never here.....except maybe income tax.

NPVAdvisor :

you have it! one more thing:

NPVAdvisor :

If she gives more than 14,000? she much file a form 709 (gift tax form) whci essentially tracks how much she's giving during life (over and above that excluded amount) ... so that it can some day be deductied against te final transfer ... the estate at death: www.irs.gov/pub/irs-pdf/f709.pdf‎

Customer:

Thank you!!

NPVAdvisor :

I think this one may work better:


Form 709 - Internal Revenue Service

NPVAdvisor :

You're very welcome

Customer:

The transfer can be handled in any way - annual, lifetime or after death. With no differences in tax outcome.

NPVAdvisor :

ONly in that i she transfers under 14,000 every year, shes saving ALL of the unified credit - No form 709, no reporting

NPVAdvisor :

basically, if there's a $27999 account at the bank, they can transfer that to you if its jointly owned (remember only Moms half has a transfer tax implication here) withou ANY tax implication or reporting

NPVAdvisor :

28000 / 2

NPVAdvisor :

14000

Customer:

Got it. Dad can transfer all he wants though

NPVAdvisor :

yep... just remember that if they jointly own it now and write a check to you 1/2 of that is Mom's gift

Customer:

I see. Almost missed that point. Thanks.

Customer:

Are there any tax implications for the property I need to be concerned with?

NPVAdvisor :

None whatsoever, the Giftee (receiver of the gift) is never responsible ...hang on one sec and I'll get you the tax citation on that one

NPVAdvisor :
(a) General rule.--Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance.


26 U.S.C.A. § 102 (West)

Customer:

wow. sounds all so easy after talking with you. I don't know what I was confused about. Thanks again!!

NPVAdvisor :

I'll give one little disclaimer (probably stating the obvious here) you WILL owe tax on any interest, dividends, capital gains, once it becomes yours, gonig forward

NPVAdvisor :
(a) General rule. Property received as a gift, or received under a will or under statutes of descent and distribution, is not includible in gross income, although the income from such property is includible in gross income. An amount of principal paid under a marriage settlement is a gift.

26 C.F.R. § 1.102–1
NPVAdvisor :

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.


HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

NPVAdvisor :

And feel free to bookmark for future reference

NPVAdvisor :

Questions?

NPVAdvisor :

Still with me?

NPVAdvisor :

OK, still don't see you coming back into the chat. I'll move us to the Q&A mode ... maybe that will help .... (you can ask any follow-up questions there, just not in real-time as here) .... let me know

NPVAdvisor :

Enjoyed chatting with you

NPVAdvisor :

Lane

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,847
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Lane and 87 other Tax Specialists are ready to help you
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Thanks for using us Hiro,

If you'd like to work with ME, specifically, again just say "For Lane only," at the beginning of your next question.

Thanks again,
Lane
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Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,847
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Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986

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