Trust Advisor notes, in a recent article entitled “Foreign Spouses Need Strong Trust Planning,” that foreign direct investment (“FDI”) in North Carolina generally surpasses $1 billion annually, which boosts the state’s private sector employment by hundreds of thousands of workers.
This foreign investment means the addition of individuals who aren’t U.S. citizens, but who establish residence here. They’re known as “resident aliens” under U.S. tax law. There are also nonresident, non-U.S. citizens (“nonresident aliens”) who will invest in real and personal property situated in the state. This can include a wide variety of real and personal property, from vacation homes to ownership interests in a holding or operating company.
This uptick in foreign business and personal investment means more attention to the complex federal tax requirements applicable to non-U.S. citizens for income and transfer tax purposes. In addition, there are tax issues that impact non-U.S. citizens in connection with transfers of money or property during their lifetime or at death.
Generally, the U.S. imposes estate and gift tax on the worldwide assets of U.S. citizens and resident aliens. A major step in the estate planning process is determining your citizenship and, if married, that of your spouse. The estate and gift tax ramifications are in large part determined by the type of tax, domicile tests, marital status, property ownership and situs tests and treaty provisions.
For the U.S. estate and gift tax rules, “residence” and “domicile” are the critical thresholds that should be analyzed by your estate planning and tax attorney.
The test to determine “residence” for transfer tax purposes is subjective. An individual donor is a U.S. resident for U.S. gift tax purposes if he or she is “domiciled” in the U.S. at the time of the gift. For U.S. estate tax purposes, a deceased person is a U.S. resident decedent if he or she was “domiciled” in the U.S. at death. The Treasury defines “domicile” as living in a country without a definite present intention of leaving.
This decision requires a facts-and-circumstances analysis of the person’s “intent to leave.” The IRS looks at visa status, tax returns, length of U.S. residence, social and religious affiliations, voter registration and driver’s license issuance. However, simply having a “green card” isn’t enough to prove U.S. domicile.
Reference: Trust Advisor (April 24, 2017) “Foreign Spouses Need Strong Trust Planning”