for producer use only. not for client presentation. e state p lanning gift and estate planning for...

For producer use only. Not for client presentation.

ESTATE PLANNING

Gift and EstatePlanning forForeign Nationals


This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely solely on their own independent advisors regarding their particular situation and the concepts presented here.


Foreign Nationals

Expanding global economy

Need for planning

Impact of U.S. transfer taxes


Defining the Market

Metropolitan Area % of Population that is Foreign Born*

Total USA 12.4%

Miami-Fort Lauderdale-Pompano Beach, FL 36.9%

Dallas-Fort Worth-Arlington, TX 17.7%

Los Angeles-Long Beach-Santa Ana, CA 34.6%

San Francisco-Oakland-Fremont, CA 29.5%

*The foreign-born population includes anyone who was not a U.S. citizen or a U.S. national at birth.This includes respondents who indicated they were a U.S. citizen by naturalization or not a U.S. citizen. (U.S. Census Bureau, American Community Survey 2007 Subject Definitions).

Source: U.S. Census Bureau, 2005-2007 American Community Survey


Planning Opportunities

A survey of recent immigrants to the U.S. with a net worth of $10 million or more found:

Source: “Clueless,” Trusts and Estates, December 2003

Survey Question Asked% Who

Answered Yes

Before emigrating to the U.S. those who sought advice as to the consequences of acquiring a U.S. residency for U.S. gift and estate taxes

34.5%

Obtained advice for making gifts of non-U.S. property prior to coming to the U.S. 10.9%

After emigrating to the U.S., those who sought tax advice 49.6%

Of the above group, those who sought advice on U.S. estate planning that could minimize estate taxes 6.8%


Defining the Market

Foreign national gift and estate tax planning targets:

Non-U.S. citizens

Resident Aliens (RA)

Nonresident Aliens (NRA) who own property situated in the U.S.

U.S. citizen married to a non-U.S. citizen


Resident vs. Nonresident Alien

Classification of foreign nationals

For U.S. tax purposes, foreign nationals areclassified as:

Resident alien (RA), or

Nonresident alien (NRA)

Foreign nationals taxed differently based on residency status


Primary Planning Concerns for Foreign Nationals

U.S. Gift & Estate tax issues

NRA obtains U.S. resident status

Marriage to non-U.S. citizen, whether RA or NRA

Transfer of property by an NRA to take advantageof difference between gift and estate tax rules

Liquidity to pay U.S. estate taxes


Gift and Estate Taxes: Determining Domicile Resident or nonresident status for U.S. gift and

estate tax purposes determined by location of individual’s domicile

“Domicile” is defined as the location at which a person lives, even if for a brief time, but also at which the person intends to remain indefinitely

Person with domicile outside of U.S. is NRA

U.S. domicile results in RA status

Domicile test is subjective test based on one’s intent


Estate Tax Comparison: RA vs. NRA

*Available to non-U.S. citizen spouse if assets are transferred to a QDOT** Intangible property includes stock in a U.S. corporation and interest in a U.S. partnership

Resident Alien (RA) Non-Resident Alien (NRA)

Lifetime estatetax exemption Same as U.S. citizen $60,000

Estate tax rate Same as U.S. citizen Same as U.S. citizen

Unlimitedmarital deduction

Only for those with U.S. citizen spouse*


Assets subjectto U.S. estate taxes All worldwide assets

U.S. sitused properties, including most

intangible properties**


Assets Worldwide Can Be Included

Example: Maria, a Mexican Citizen with a Green Card

$10 Million in U.S. Assets

$15 Million in Mexican Assets

$5 Million in Canadian Assets

What is the value of her estate for U.S. tax purposes?





Lifetime estate tax exemption Same as U.S. citizen $60,000


Unlimited marital deduction



Assets subject to U.S. estate taxes All worldwide assets




Why Planning Is Important: NRAs

Example: Ricardo Montalbano,Brazilian national, Nonresident Alien

$10 million in U.S. property and investments

No advanced planning

Death in 2011

Gross Estate Taxes ($5,140,800)

Less Credit 13,000

Net Estate Taxes ($5,127,800)

Net U.S. Assets $4,872,200

Estate Shrinkage = 51.27%





Lifetime estate tax exemption Same as U.S. citizen $60,000


Unlimited marital deduction



Assets subject to U.S. estate taxes All worldwide assets




Nonresident Aliens:Taxation of U.S. Situs Property

Overview of general rules

NRAs are subject to U.S. gift and estate taxes for transfer of only those properties deemed to be situated (situs) in the U.S.

Situs rules differ depending on type of property being transferred

Scope of situs rules for gift taxes much narrower than for estate taxes


Gift Tax comparison: RA vs. NRA

* Tangible property includes cash, jewelry, paintings, automobiles


Gift tax rate Same as U.S. citizen Same as U.S. citizen

Annual gift tax exclusion amount

$13,000 $134,000 for gift

to non-U.S. citizen spouse Unlimited to U.S.

citizen spouse

$13,000 $134,000 for gift to

non-U.S. citizen spouse Unlimited to U.S.

citizen spouse

Lifetime gift tax exemption amount $1,000,000 None

Assets subject to U.S. gift taxes All worldwide assets

All U.S. sitused property including real property and tangible assets.* Intangible property is not included


Nonresident Aliens: U. S. Gift and Estate Situs Rules

* A gift of a life insurance policy on oneself may be subject to the IRC §2035 look back rule, and therefore may be subject to estate taxes if included within the decedent’s estate.

Type of property transferred

Subject to U.S. Gift tax

Subject toU.S. Estate tax

Real property located in U.S. Yes Yes

U.S. tangible personal property (i.e., cash, jewelry, paintings, automobiles) Yes Yes

U.S. intangible personal property (i.e., stocks in U.S. corp., interest in U.S. partnership)

No Yes

Ownership interest in a U.S. life insurance policy on the life of another No Yes

Ownership interest in a U.S. life insurance policy on oneself No* No


Planning for the NRA: Example

Example: Ricardo Montalbano, Brazilian national, Nonresident Alien Single $10 million in U.S.-based property and investments

Planning strategies: Consider transferring commercial real estate into a

business entity, such as family limited partnership, LLC, or C corporation

Gifting shares of business entity as appropriate Purchasing life insurance through a grantor trust to

assure estate liquidity for non-gifted assets


Nonresident Aliens: U.S. Gift Taxes

Planning strategies that may minimize gift taxes: Remove tangible personal property from

U.S. prior to gift Convert tangible property into intangible property

Examples: U.S. cash deposited to a U.S. bank

Contribute tangible property to a corporation or partnership, then gift intangible interest of corporation or partnership


Nonresident Aliens: U.S. Estate Taxes

Planning opportunities:

Minimize NRA’s U.S. estate by taking advantage of differences between gift and estate situs rules

Example: shares of a U.S. corporation should be gifted before client’s death


Qualified Domestic Trusts (QDOT)

Creating a QDOT

DistributionLimitations

Instances whenestate tax applies



Can be established in the estate documents of decedent

Can be created by surviving non-citizen spouse within nine months of decedent spouse’s death

Property transferred can qualify for the unlimited marital deduction thereby deferring estate taxes.

Qualification requirements

Creating a QDOT



Not subject to estate tax if:

Distribution of trust income paid tonon–citizen spouse annually

Principal distributions for “hardship”

Spouse becomes U.S. citizen

Creating a QDOT




Subject to estate tax if:

Distributions of principal will result in estate taxation

If the QDOT fails to meet requirements

Distributions of principal, and property remaining in the

QDOT at spouse’s death

Creating a QDOT


Instances whenestate tax applies


QDOT Planning Alternative

Gifting Program using “Super Annual Exclusion”:

Planning option—utilize a gifting program to non-U.S. citizen spouse

$134,000 annual exclusion to gift funds to non-U.S.citizen spouse to purchase life insurance policy


Annual Exclusion:TransWare Illustration

Example: Andrea: U.S. Citizen Andrea’s Husband: Non-U.S. Citizen

Year Net Death Benefit Internal Rate of Return

10 $3,793,000 18.34%

20 $3,793,000 4.84%

Year Net Death Benefit Internal Rate of Return

10 $3,793,000 18.34%

20 $3,793,000 4.84%

TransACE®

Andrea, age 68 – Standard NS

15-pay Premium: $ 134,000

Death Benefit: $3,793,000


Taxation of Life Insurance Death Benefits

Insurance proceeds on life of NRA are not U.S. situs property and not included in decedent’s gross estate

NRA can own life insurance policy on own life, and death benefits will not be subject to income or estate taxes

Life insurance can provide liquidity to pay estate taxes on NRA’s U.S. situs property


Nonresident Aliens and Life Insurance

Income taxation of withdrawals and loans*

Income, such as gain in the policy, received from life insurance contract issued by U.S. carrier, resultsin NRA being subject to 30% tax and withholding.

Applies even if policy is issued through foreign branch of U.S. carrier

For non-MEC contracts, withdraw up to basis and then take loans to avoid income taxes

Tax and withholding could possibly be avoided by purchasing an offshore product

*The taxation of income may be altered or modified by an applicable income tax treaty.


Why Transamerica

All U.S. products are available for foreign national business

Expertise of our Advanced Marketing team Dedicated International Underwriting Team

Priority handling for all large cases* Reviewed within 24 hours of receiving the file

Expedited review of traditional new business and trials Reviewed within 72 hours of receipt

High-tech reinsurance processing Competitive premiums for most regions of the world Eligibility based on medical qualifications and country

of residence—not capped at Standard

*$1 million face amount or $100,000 premium


Tools and Resources

Consumer Brochure

Producer Guides

Flyers

Presentation


OLA 2026 0510

TransACE® is a nonparticipating, flexible-premium universal life insurance policy issued by Transamerica Life Insurance Company, Cedar Rapids, IA 52499. Policy Form #1-12611107 (CVAT), Group Certificate #2-72336107 (CVAT) for certificates issued under a group policy issued to the Rhode Island National Consumer Protection Trust. Policy form and number may vary, and this policy may not be available in all jurisdictions.

Transamerica Life Insurance Company (“Transamerica”) and its representatives do not give tax or legal advice. This material is provided for informational purposes only and should not be construed as tax or legal advice. Clients and other interested parties must be urged to consult with and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here.

Discussions of the various planning strategies and issues are based on our understanding of the applicable federal laws in effect at the time of publication. However, these laws are subject to interpretation and change, and there is no guarantee that the relevant authorities will accept Transamerica’s interpretations. Additionally, this material does not consider the impact of applicable state laws upon clients and prospects.

Although care is taken in preparing this material and presenting it accurately, Transamerica disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it. This information is current as of May 2010.


ESTATE PLANNING

Gift and EstatePlanning forForeign Nationals

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