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ESTATE PLANNING LIBRARY

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					1. What is different about gift tax planning            his or her country of origin and the     rather than just $1,000,000. Unfortunately,
for the non-citizen spouse?                             Federal government would never           some spouses, and their advisors, are not
                                                        get any taxes when the non-citizen       aware of the rules and may, inadvertently,
I think it is better if I explain the “general” rules   spouse died owning the gifted            make gifts to a non-citizen spouse greater
for citizen spouses first. The goal of the estate       property.                                than $110,000 per year.
and gift taxes (the estate taxation of non-citizen
spouses is covered in Number 21 of the Estate           The government decided that it           4. How can people unknowingly make
Planning Library) is to impose a tax at each            would be unfair to not allow any         gifts as large as $110,000? Would you
generation, but not to financially burden               gifts to non-citizen spouses, or only    provide an example?
surviving spouses by imposing an estate tax at          the ,current, $11,000 gift tax
the death of the first spouse to die. Typically,        exclusion that is available to           Sure, good idea. Sometimes people just
one spouse dies and leaves any property that            anyone. To resolve this potential        don’t think about gift taxes when they are
would be subject to estate taxes to the surviving       for unfair treatment, the law allows     doing things. I suppose the biggest culprit
spouse and there are no taxes imposed on the            a spouse to make an annual gift of       is the use of joint tenancy. Let’s assume
transfer to the surviving spouse because of the         $110,000, currently, it is indexed       that a U.S. citizen wife marries a German
unlimited marital deduction.             When the       for inflation, to a non-citizen spouse   citizen as her husband, and that the wife has
surviving spouse dies, his or her estate is             without any gift tax consequences.       the wealth. Wife has a bank account with
subjected to estate taxes, if large enough. You         If a larger gift is made, then some of   $500,000 that she puts in the name of Wife
can see how there is a certain symmetry to the          the donor spouse’s tax exempt            and Husband as joint tenants with right of
arrangement. Spouses are protected but the              amount, currently $1,000,000, is         survivorship. The question is, has Wife
estate of the last to die is subjected to Federal       used up.                                 made a gift of $250,000 to Husband by
estate taxes.                                                                                    taking the account in their joint names? If
                                                        3. That sounds simple, the donor         so, Wife has just used up $140,000 of her
Likewise with gifts, one spouse can make unlimited      spouse simply makes annual gifts         tax exempt amount because she made a gift
gifts to the other spouse, because in the end all of    of $110,000, or whatever amount          in excess of $110,000 to her non-citizen
both spouse’s property will be subjected to estate      applies when the gift is made, to        spouse.
taxes, if the estate is large enough.                   increase the wealth of the non-
                                                        citizen spouse, right?                   5. That doesn’t make sense, simply
2. Isn’t that what happens with non-citizen                                                      putting someone’s name on an account
spouses?                                                That is correct, and it is a very        cannot be a gift, can it?
                                                        effective method to decrease the
  As I mentioned in question one, one spouse            family’s overall estate taxes because    In the case of a joint account in personal
can make unlimited gifts to a citizen spouse            the large estate of the wealthy          property, it sure does:
without gift tax consequences. It doesn’t matter        spouse is spread over two                       Joint Bank or Brokerage Accounts:
if the spouse making the gift is a non-citizen,         $1,000,000 tax exempt amounts                    The rules are very different for joint
only the citizenship status of the recipient or         rather than just the wealthy spouse’s            accounts with non citizen spouses than
beneficiary spouse that matters. However, if the        $1,000,000 tax exempt amount. In                 for citizen spouses. In 1988, Congress
spouse made the same gift to a non-citizen              effect, the gifts will enable                    repealed     the    unlimited      marital
spouse, the non-citizen spouse could move to            $2,000,000 to pass estate tax free               deduction for gifts to non citizen
    spouses. Section 2523(i) of the Internal         Husband,       the     non-citizen
    Revenue Code provides that no marital            spouse, and purchased a
    deduction is allowed for gifts to non citizen    $250,000 home in joint tenancy,
    spouses and, as to joint accounts, the           there is no gift because, without
    principles of, repealed, Internal Revenue        the special “no gift rule,” the
    Code section 2515A shall apply to such           creation would have been a gift
    accounts. Repealed, yet still effective, as      of one-half of the property, less
    regards joint accounts with non citizen          the $50,000 contributed by            ESTATE PLANNING LIBRARY
    spouses, 2515A provides that a joint             Husband, under most, if not all,
    account which includes a non citizen spouse      state laws. As you will read in             Number Twenty
    shall be treated as owned one-half by each       No. 21 of the Estate Planning
    owner and that a gift has occurred if one        Library: Estate Tax Planning
    spouse has contributed less than the other       for the Non-Citizen Spouse, this
    spouse.                                          special “no gift rule” is             Gift Tax Planning for the Non-
                                                     justified, because when Wife
    However, as you will see in the real             dies, if she dies first, all of the
                                                                                                   Citizen Spouse
    property paragraph, if one spouse                joint tenancy property is
    contributed all of the property, the entire      included in her estate, except
    account is included in that spouse’s estate at   for what Husband contributed.
    the donor spouse’s estate.                       That way the government gets
                                                     its cut of her $200,000 but not
   Nominal Joint Tenancies: Assume that             his $50,000. All appreciation
    Husband knew that he was not allowed to          will belong in her estate, her
    withdraw funds from the account unless           estate only gets to deduct the
    needed for household expenses. In this           $50,000.
    case, even if state law created a “real” joint
    account, the understanding of the parties
    might cause the gift to not occur, despite                                                     Compliments of
    what state law said. This is a very intent
    oriented concept, and may, likely won’t,                                                   The Weidenfeld Law Firm
    apply to non citizen spouses.                                                                888 17th Street, N.W.
   Joint Tenancies in Real Property: The                                                             Suite 900
    gift tax rule for joint tenancies in real                                                   Washington, DC 20006
    property is that the creation of a joint
    tenancy is not treated as a gift, the “no gift                                               Tel: 202-785-2143
    rule,” if the transfer would otherwise be a                                                  Fax: 202-452-8938
    gift to a non-citizen spouse. As an example,                                               www.weidenfeldlaw.com
    if Wife withdrew $200,000 from the joint
    account and combined it with $50,000 from

				
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