Foreign Nationals Producer Presentation

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posted:: 1/5/2011
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ESTATE PLANNING

Gift and Estate
Planning for
Foreign Nationals

For producer use only. Not for client presentation.
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.

For producer use only. Not for client presentation.
Foreign Nationals
 Expanding global economy
 Need for planning
 Impact of U.S. transfer taxes

For producer use only. Not for client presentation.
Defining the Market

% of Population that is
Metropolitan Area
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%

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

*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).

For producer use only. Not for client presentation.
Planning Opportunities
A survey of recent immigrants to the U.S. with a net worth of
$10 million or more found:
% Who
Survey Question Asked 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 34.5%
estate taxes
Obtained advice for making gifts of non-U.S. property prior to
10.9%
coming to the U.S.

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
6.8%
planning that could minimize estate taxes
Source: “Clueless,‖ Trusts and Estates, December 2003

For producer use only. Not for client presentation.
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

For producer use only. Not for client presentation.
Resident vs. Nonresident Alien
Classification of foreign nationals
 For U.S. tax purposes, foreign nationals are
classified as:
 Resident alien (RA), or
 Nonresident alien (NRA)
 Foreign nationals taxed differently based on
residency status

For producer use only. Not for client presentation.
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 advantage
of difference between gift and estate tax rules
 Liquidity to pay U.S. estate taxes

For producer use only. Not for client presentation.
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

For producer use only. Not for client presentation.
Estate Tax Comparison: RA vs. NRA

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

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

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

Unlimited Only for those with U.S. Only for those with
marital deduction citizen spouse* U.S. citizen spouse*
U.S. sitused properties,
Assets subject
All worldwide assets including most
to U.S. estate taxes
intangible properties**

*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

For producer use only. Not for client presentation.
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?

For producer use only. Not for client presentation.
Estate Tax Comparison: RA vs. NRA

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

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

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

*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

For producer use only. Not for client presentation.
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%

For producer use only. Not for client presentation.
Estate Tax Comparison: RA vs. NRA

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

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

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

*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

For producer use only. Not for client presentation.
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

For producer use only. Not for client presentation.
Gift Tax comparison: RA vs. NRA

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

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

 $13,000  $13,000
 $134,000 for gift  $134,000 for gift to
Annual gift tax
to non-U.S. citizen spouse non-U.S. citizen spouse
exclusion amount
 Unlimited to U.S.  Unlimited to U.S.
citizen spouse citizen spouse

Lifetime gift tax
$1,000,000 None
exemption amount
All U.S. sitused property
Assets subject to including real property and
All worldwide assets
U.S. gift taxes tangible assets.* Intangible
property is not included

* Tangible property includes cash, jewelry, paintings, automobiles
For producer use only. Not for client presentation.
Nonresident Aliens:
U. S. Gift and Estate Situs Rules
Type of Subject to Subject to
property transferred U.S. Gift tax U.S. Estate tax

Real property located in U.S. Yes Yes

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

U.S. intangible personal property (i.e.,
stocks in U.S. corp., interest in U.S. No Yes
partnership)

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

Ownership interest in a U.S. life insurance
No* No
policy on oneself
*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.
For producer use only. Not for client presentation.
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

For producer use only. Not for client presentation.
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

For producer use only. Not for client presentation.
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

For producer use only. Not for client presentation.
Qualified Domestic Trusts (QDOT)

Creating a QDOT

Distribution
Limitations

Instances when
estate tax applies

For producer use only. Not for client presentation.
Qualified Domestic Trusts (QDOT)

 Can be established in the estate
documents of decedent
Creating a QDOT
 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

For producer use only. Not for client presentation.
Qualified Domestic Trusts (QDOT)

Creating a QDOT

Not subject to estate tax if:
 Distribution of trust income paid to
Distribution non–citizen spouse annually
Limitations  Principal distributions for ―hardship‖
 Spouse becomes U.S. citizen

For producer use only. Not for client presentation.
Qualified Domestic Trusts (QDOT)

Creating a QDOT

Subject to estate tax if:
 Distributions of principal will
Distribution result in estate taxation
Limitations
 If the QDOT fails to meet
requirements
 Distributions of principal,
and property remaining in the
Instances when QDOT at spouse’s death
estate tax applies

For producer use only. Not for client presentation.
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

For producer use only. Not for client presentation.
Annual Exclusion:
TransWare Illustration
Example: Andrea: U.S. Citizen
Andrea’s Husband: Non-U.S. Citizen

TransACE®
Andrea, age 68 – Standard NS
15-pay Premium: $ 134,000
Death Benefit: $3,793,000

Year Net Death Benefit Internal Rate of Return

10 $3,793,000 18.34%
20 $3,793,000 4.84%

For producer use only. Not for client presentation.
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

For producer use only. Not for client presentation.
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, results
in 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.

For producer use only. Not for client presentation.
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
For producer use only. Not for client presentation.
Tools and Resources

Presentation
Producer Guides

Consumer Brochure Flyers

For producer use only. Not for client presentation.
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.

OLA 2026 0510
For producer use only. Not for client presentation.
ESTATE PLANNING

Gift and Estate
Planning for
Foreign Nationals

For producer use only. Not for client presentation.