Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax

Must an Estate of a State US citizen pay a transfer tax on a

Customer Question
Must an Estate of a...
Must an Estate of a Washington State US citizen pay a transfer tax on a retirement condo in mexico that was held in a Trust (being waterfront property) and for which the trust named a substitute beneficiary?
Submitted: 2 years ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 15 hours by:
8/7/2015
Tax Professional: Jonathan Tierney, Certified Public Accountant (CPA) replied 2 years ago
Jonathan Tierney
Jonathan Tierney, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 322
Experience: Tax Accountant at Praxair, Inc.
Verified

Hi, my name is ***** ***** I my goal here is to provide you with a complete and accurate answer. All United States citizens are required to report all assets, wherever in the world they are located.

However, you mentioned that the property is held in a trust. Whether or not this is includable in the estates taxable assets depends on what type of trust is holding the property. If this is a grantor or revocable trust, where the person that set up the trust has the authority to revoke trust agreement entirely and take back title to all assets or rename beneficiaries while alive, then the property would be included in the estate assets.

However, if this trust was made irrevocable during the grantor's lifetime then the trust's assets are not included in the taxable estate assets, generally as long as the trust was made irrevocable more than three years before the decedent's death. The transfer to the irrevocable trust would have been a taxable gift at the time the transfer and a Form 709 should have been filed to report the gift and included in total lifetime transfers of the decedent. If not gift tax return was filed, then the executor of the estate would be responsible for the filing of the late gift tax return. However, the assets of the trust would not longer be part of the taxable estate assets.

Lastly, which entity, the trust or estate, would be responsible for paying any estate taxes? The IRS generally looks first to an estate to pay any estate taxes, however, if the estate does not have sufficient assets to pay the transfer tax, the IRS could seek to obtain the transfer taxes due from the trust. However, since the property is in Mexico and the trust has no US-based assets this would not be practical if the trustee of that trust is not cooperative. The decedent's will or the trust instrument should have directed the trustee and/or the estate executor as to how the transfer taxes should be paid (according to the IRS). If these documents do not mention anything as to who is responsible for the transfer assets, the estate is primarily responsible for all the transfer taxes with the trust as secondarily responsible if the estate is underfunded. IRS's view is the payment of transfer taxes should be part of the estate plan and, as such, would be part of the decedent's wishes in reducing the inheritance available to estate beneficiaries.

As an additional service, you can upload copies of the will and trust instrument and I can let you know what type of trust this is and how the documents instruct the trustee and executor how to pay the transfer taxes.

I hope to answers you question. Let me know if I can clarify anything. Joanthan

Ask Your Own Tax Question
Customer reply replied 2 years ago
Hi Johnathan,
I would like to continue this conversation by first providing information regarding the trust I am referring to: " Foreigners are welcome to invest in property along the coast, but there are restrictions. The most important restriction is contained in Article 27 of the constitution which states "that foreigners cannot own property within 100 kilometers (60 miles) of the border and 50 kilometers (30 miles) of the coastline." The government, however, provides two ways to get around this restriction - through the use of a Trust (Fideicomiso) or a Mexican corporation.
How Does the Trust Work? - Three parties are involved in the trust:
The trustor (the owner of the original property)
The trustee (which is the bank)
The beneficiary (the person who will receive the benefits of the trust.)
The Trust, which in Mexico is called a Fideicomiso, does not give direct ownership to the foreign beneficiary. Instead, it establishes the legal basis by which the bank holds legal title to the property in order to act on the foreigners behalf. This trust deed assures the foreign buyer of all rights and privileges of ownership. The Foreign Investment Law, a Constitutional amendment created in 1973 and amended again in 1994, allows the trust to be established for a term of 50 years and is renewable any time during its existence, forever.
The Bank (trustee) holds the trust deed for the person who purchases the property (beneficiary). The property is not part of the bank's assets and cannot be liened or attached for any other obligations. You, the purchaser, are the beneficiary and have all rights of enjoyment of the property including the ability to remodel, lease, mortgage, pass to their heirs or sell the property at any time.Johnathan in this case the deceased was the beneficiary and his daughter is the substitute beneficiary.
Tax Professional: Jonathan Tierney, Certified Public Accountant (CPA) replied 2 years ago

Okay, now I understand the situation. Under US tax law Mexican Land Trusts (MLT) are not considered trusts at all. The Mexican property therefore belongs to the decedent and its fair market value would be included it the estate. US tax law does not determine what someone's rights to property are, but rather states how those rights, as determined under state or foreign law, to property are taxed.

I have attached a copy of an IRS Revenue Ruling that states that MLT's are not really "trusts" as they are to be treated as the property of the MLT beneficiary.

I hope this answers your question. Let me know if you need any additional information. Jonathan

Ask Your Own Tax Question
Tax Professional: Barbara, Enrolled Agent replied 2 years ago
Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 4,034
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
Verified
Different expert here - my name is ***** ***** please allow me to provide additional information which you will find helpful.
Based on the information contained in your question, it appears you are trying to determine if transfer tax is to be paid in Mexico by the deceased's daughter.
As you probably already know, transfer tax is paid by the person acquiring property and rates very among the states from 2% to 3.3% of the property’s market value. Additionally, a notary fee of approximately 1% of the value of the property may also apply. Taxable transactions typically include transfers that occur by reason of purchase and sale, donation, death, or contribution to, distribution from or reorganization of a legal entity.
In Mexico, death is considered to be a taxable transaction and transfer tax would be required to be paid.
http://www.itaxcpa.com/mexico_realty.htm
Please let me know if I can assist you further.
Thank you and best regards,
Barb
Ask Your Own Tax Question
Customer reply replied 2 years ago
thank you Barbara for your input. Actually the US citizen is deceased and named a substitute beneficiary in the MLT document. All the Mexican taxes were paid and a new MLT drawn up. Does the US require the Estate of the US citizen to pay a transfer tax
Tax Professional: Barbara, Enrolled Agent replied 2 years ago
I apologize I misunderstood what you were asking in your original question. Hence, my answer as it pertains to Mexico.
Mr. Tierney's answer is absolutely correct, and I urge you to rate his answer as "excellent."
Again, my apologies.
Best regards,
Barb
Ask Your Own Tax Question
Ask Barbara Your Own Question
Barbara
Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 4,034
4,034 Satisfied Customers
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.

Barbara is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
I inherited rental properties. I got an LLC set up using an
I inherited rental properties. I got an LLC set up using an EIN number with a property management who no longet works for me.Can I remove their EIN number? legalgems… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I am a Card holder planning to sell foreign assets (property
Hi....I am a Green Card holder planning to sell foreign assets (property in India)...I am aware that I will have to pay the higher of the 2 tax liabilities (either Indian or American)..I expect my US … read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
723 satisfied customers
Under the IRC, a taxpayer who inherits property gets an
Under the IRC, a taxpayer who inherits property gets an automatic, income-tax-free, step-up in basis for that asset. That is, the heir uses the property's value on the deceased's date of death (or 6 m… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
What are tax implications when docating small IRS to state
What are tax implications when docating small IRS to state university … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I received a Beneficiary Claim Form from American Equity
I received a Beneficiary Claim Form from American Equity Investment Life Insurance Co. concerning my deceased Mother's policy (IRA). My question is this: should I have federal/state withholding and at… read more
abci168
abci168
Principal
27 satisfied customers
Tax Atty or CPA only: I donated intellectual property to a
Tax Atty or CPA only: I donated intellectual property to a charity last year and as it was over $5K, had an IRS -qualified appraiser value the asset. He used the cost-to-replace method (what the chari… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I have 160K from an inherited on demand IRA distribution for
Hello, I have 160K from an inherited on demand IRA distribution for 2016. My home is free and clear. My property taxes on it are 14K. I donated 25K to charity. Based upon these figures, I have no othe… read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
723 satisfied customers
I am receiving some income from a foreign government "social
I am receiving some income from a foreign government "social security-type" benefit program. Where should I report this income in my Tax Return? Should I report it as "Other Foreign Financial Assets"?… read more
abci168
abci168
Principal
27 satisfied customers
Does a foreign government type "social security" benefit
Does a foreign government type "social security" benefit plan need to be reported on an FBAR as a Foreign Financial Account?… read more
Barbara
Barbara
Enrolled Agent
4,034 satisfied customers
Client (US resident) with foreign salary and taxes paid in
Client (US resident) with foreign salary and taxes paid in foreign currency - Part II of 1116 form for some reason adds taxes paid only in US $ (line "o" through "r") - it does not take taxes paid in … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Related to my previous question are the US beneficiaries of
Good afternoon, related to my previous question are the US beneficiaries of an offshore/ foreign trust obliged to report to the IRS that they are beneficiaries even when the trust had not distributed … read more
abci168
abci168
Principal
27 satisfied customers
Would it be correct to report a foreign cash inheritance as
would it be correct to report a foreign cash inheritance as an initial and final on form 3520? bequest, no trust, will require FBAR now and for some years but the 3520 is mny concern … read more
abci168
abci168
Principal
27 satisfied customers
What tax form is filed to report dividends paid by US Corp?
What tax form is filed to report dividends paid by a US Corp which is owned by a Canadian Corp? I think it might be 1042S. I want to know the rate of WH.… read more
abci168
abci168
Principal
27 satisfied customers
Real estate tax exemption removal back taxed. Property was
Real estate tax exemption removal back taxed. Property was owned by church in small town. Now private owned residential. Back tax assessed is more than current year tax!… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
D Form 8804 and 8805 need to be filed for a foreign
D Form 8804 and 8805 need to be filed for a foreign partnership if the partnership posted a loss for the year?… read more
Barbara
Barbara
Enrolled Agent
4,034 satisfied customers
I am aware that a foreigner can form an LLC in the states.
Hi,I am aware that a foreigner can form an LLC in the states. My question is; if he/she is living in Japan and wants to live in California by starting a business, is forming an LLC here in the US solv… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
My question involves immigration law and tax law. Foreigner
My question involves immigration law and tax law.Foreigner comes to USA, becomes permanent resident. Had assets from before. I was told if you bring up to 100k USD per year to the USA, IRS doesn't min… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
US State Tax Law Regarding Inheritance: I would like to find
US State Tax Law Regarding Inheritance: I would like to find out if inheritance from a parent in Georgia would be taxable for children/grandchildren living in North Carolina, Maryland, or Georgia. The… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x