Financial Planning Considerations for Mixed Nationality Couples
Presented by: Ashley Murphy, CFP®, GFP (USA)
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Welcome to today's presentation on financial planning considerations for mixed nationality couples. I'm Ashley Murphy, the co-founder, and president of the Global Financial Planning Institute. My co-founder, Matt Goran and I got the Global Financial Planning Institute going a year ago, and we're now proudly over more than 130 members, including full, associate, and open members in that time. The purpose of the Global Financial Planning Institute is to provide education, community, tools, resources, and ongoing research for fiduciary financial advisors, and affiliated professionals worldwide who work with clients whose financial lives cross-border is quite a mouthful.
Indeed, we've had a lot of positive press from Michael Kitces, the New York Times, and other sources. Here is a comparison of the different membership levels within the Global Financial Planning Institute: Open membership is free. Our Open membership platform is where we record our webinars and make them available. So if you're going to write in afterward and say, "How do we get a copy of this presentation?", the answer is you become an open member and access it from there. Associate members have almost all the benefits of full membership. You might think of it as essentially an annual pass to premium content.
But the difference between an Associate member and a Full member is the Full members have completed the masterclass in inbound outbound international financial planning from a US perspective. They've also passed a proctored exam which gives them the ability to have a find an advisor listing on the Global Financial Planning Institute website, gain access to the exit tax calculator, and use the GFP designation. As I mentioned, Associate members have access to premium content but they do not have the find an advisor listing.
Okay, so what about this masterclass? Very briefly before we get into the content, it's a 10 lesson program. It starts Thursday, September 30, runs through December 9. Essentially we've recorded up to two hours per lesson of the best content addressing these particular topics and then we host a subject matter expert typically someone who is is either a tax attorney, a state attorney, an international CPA, or some other international expert with relevant experience who can talk authoritatively on that particular topic. Course fee includes a full year of membership with full member membership.
Of course, no presentation to a financial advisory audience would be complete without its disclaimer. The information here does not constitute personal financial tax or investment advice. We've sourced it from reliable sources and we believe it to be accurate, but we encourage you to do your research, especially as this is an open member presentation.
Financial Topics for Mixed Nationality Couples
Okay, so let me go through what we shall be talking about today. First of all, before we get into how things differ between the US versus the non-US, we've got to be clear on some definitions. So we're going to go through talking about legal versus tax residency, the tax treatment of non-US citizens, the situs of a Latin word, situs for the location of an asset, source of income, and the concept of the real-world consequences of being a US tax resident. Then we look at the major decisions that the couple needs to make, namely, to bring the non-US spouse into the US financial system or not. And we're going to go through a case study, a very quick case study.
Looking at that, who holds the asset and which country and strategies to make the most of the mixed nationality status, including account titling, trusts and businesses, and gifting of highly appreciated assets to non-US spouses. Your note missing from this open presentation is topics to deal with estate planning here, and we really could run and likely will run another presentation for Full and Associate members, looking at the estate planning considerations of mixed nationality couples.
Key Financial Concepts and Definitions for Mixed Nationality Couples
So key concepts and definitions, let's get into it. Legal versus tax residency. So under US immigration laws, there are distinct differences compared with US tax laws. When one says that they're a resident, there are three different kinds of residency that we could talk about: tax residency, immigration slash legal residency, and estate tax residency. They all have different definitions.
So for legal residents' immigration status, there are four categories that we're concerned with. There are US citizens, permanent residents (otherwise known as green card holders), conditional residents who are in the process of becoming green cardholders (non-immigrants, ie visa holders, these are temporary residents with the intention to stay in the US), or lastly, would be undocumented.
So, if we compare that with tax residency, how does that compare citizens and legal permanent residents? Green card holders are always US tax residents, regardless of where they're located. They could be in Antarctica, Austria, Zimbabwe, or anywhere in between, and they're still considered US tax residents.
Non-citizens are either US resident aliens or non-resident aliens. So that's a pretty stark and dividing line right there. So an alien (ie, not a US person) falls into one of two categories. They're either a resident alien (are in the US legally) and the taxation of these individuals is essentially the same as it is for US citizens. So this is green card holders or permanent residents, and it includes worldwide income taxation. That's not very different to many most other developed countries. If you are a tax resident of that country, ie in most other places, that means to live in that country, they're gonna tax you on your worldwide income. The key difference with the US is even if you move away and you are considered a citizen or a legal permanent resident, then you're going to be taxed on your global situation regardless.
So resident aliens also need to be concerned, as do citizens, with the hot act and expatriation. That's an exit tax brought about in 2008. The hero's earnings and repatriation tax to fund benefits for veterans and includes an exit tax. If you're a longtime resident of the United States, which essentially means a green card holder, not a visa holder, a green card holder has been in the US for eight of the past 15 years, you may have to worry about an exit tax. And that's a whole complicated topic unto itself. We spent half a lesson on that in the master class.
Okay, for US tax purposes, an alien falls into one of two categories: you are a resident alien or a non-resident alien. If you're not in the US, and you're not a permanent resident or citizen, then essentially you're a non-resident alien. So you're a non-resident, meaning you live in the US or you're an alien (that's that flattering term for a non-US person) and a non-citizen or permanent resident, then you're a non-resident. And they're taxed only on their income that's effectively connected with the US trade or business to a limited extent, investment income from other US sources so that they're going to get taxed on only on those things that are considered to be US sourced.
Source of Income for Mixed Nationality Couples
Okay, so questions coming in. And we will wait until the end to address most of those. Okay, source of income, important concept. Of course, that's why we put it in the foundation concepts here at the beginning. So the source of income is to do with where income is deemed to come from, the source determines which country gets the first tax rates. It's no different than if a US domestic client had a rental property in a given state. If that state has an income tax, then there's going to be income sourced to that state because that's where the asset is deemed to have been sourced from - it's the same concept at the international level.
Whether any additional tax is owed depends on a range of factors. A great example of that would be where I am right now. I'm here with my family for 18 months in Australia, I'll be returning to my primary residence, Minneapolis, Minnesota. In a year that I've been in Australia, the income tax rates come on sooner, and they come on higher. So as a result of that, if I were an Australian tax resident, I would be paying more Australian tax than I would US tax. The US would look at that and say, "I see that you are a primary Australian tax resident in this year, therefore, we give you a foreign tax credit for that tax paid, which equals more than the US assessed income for the same amount of income as we would assess you for in the US, therefore, we're not going to hit you with any additional tax." However, how would that situation look if you were in a lower tax jurisdiction such as Hong Kong, the British Virgin Islands, the UAE to name a few, well, that's where the sting would be in the tail for the US tax resident. And this indeed would be a very different presentation for someone coming from that situation or circumstance because right there, they're paying us tax because the foreign assessed income is essentially nothing or close to nothing. 15% in Hong Kong is much lower than in the US so therefore, they will be taxed and they'll pay the lower of the two.
In my case, that being here in Australia, I pay the higher of the two. So that's the first concept that we have is the relative tax rates are going to differ, again, to determine whether or not there's any additional tax owed.
What about state-level taxation? So maybe there's a Canadian provincial-level tax that's applied. Not so anywhere else that I'm aware of. That's more of a US thing. Okay, foreign tax credit, and how this might offset or eliminate US tax. So that's what I was just explaining a moment ago with my example. You're in Australia or most other developed countries, the foreign tax rate is higher than the US tax rate, you get a foreign tax credit for the foreign taxes that you've paid, which can offset your us assessable income for non-US sources to that foreign earned income. And that would take care of any US assessable tax for US tax, foreign earned income exclusion.
So going back to that example of the individual from the UAE, they may make, let's say $200,000. The first $107,600 would be able to be excluded from their income and not pay US tax. But that next $92,400 that next day two-thirds voted, that is going to be paid at the appropriate marginal rate above $107,600. So, it doesn't start from zero above the Foreign Earned Income Exclusion amount, it goes straight to where those applicable marginal rates work.
Foreign Housing Exclusion and a Foreign Housing Deduction
This is a benefit to employees, where they're being provided with this as a benefit, it's not included in their assessable income. And we also need to look at the applicable tax treaty to determine which country can tax what income. Okay, so as an example, super duper straightforward example here, we've got a couple living in the US who owns an Australian investment property. Real estate is considered sourced to the country where the property is located. Thus, this is going to be Australian sourced income. The Australian Taxation Office gets first taxing rights. But as a couple of US tax residents, the income will need to be included on their US tax fund to determine whether any additional tax is owed. The point of this example here is we are talking about the source of income. So the OTO gets first taxing rights on this Australian sourced income, the US is going to look at that and say, "Great, we see that you've got worldwide income, can we assess it? We'll see about that. And we will if we can't."
Non-resident aliens are generally subject to transfer taxes only on US situs assets so transfer taxes is a simple term meaning gift and estate tax. So it let's just break this sentence down because there's a lot going on here. Non-resident aliens (ie the folks that don't live in the US and nor are they green card holders or citizens so they're not in the US) are only going to pay gift and estate taxes on those assets that are considered to be situs located in the US. So real estate and trust businesses effectively connected to the US and a host of other things that we'll talk about in just a moment, they don't necessarily make a whole lot of sense but there was never a rule it said that this should make a lot of sense so let's see what we have here. It boils down to tangible and intangible property.
Tangible property is always considered a US situs and that will include personal property. And then other items, cars, collectibles, sporting equipment, etc. Intangible property may or may not be considered a US situs so let's go over this quick. This is where we are honored to have Jonathan Mint, a very well respected international estate attorney present who was also a part of the master class just a few weeks ago. So here are some examples of things that are US situs and those things that are not US situs.
The Cut Off
So real-world consequences of being a US tax resident, this is quite a long and involved list right here. So you've got reporting. Now reporting is not costless. In terms of time or money, there's a tax return need to file. Even if you don't have an actual tax obligation. Owing to that foreign country, it's still a nuisance. It costs time and money. So that's the first day Pacific issues. This is a much bigger problem, I think and widely unaddressed, for for non international and cross border payments, blissfully unaware of it and, and go about doing what they're doing. And it's essentially a punitive tax regime brought about 1986, where the US treats any foreign held ETF mutual fund or really any kind of managed investment and a whole host of other things. But beyond the scope of today's presentation, as passive foreign investment corporations, that is subject to three different types of treatment. The first would be to declare it and pay tax income tax on it on an annual basis that requires very proactive tax planning and knowledge on behalf of recipient in planner to know that next would be a qualifying electing fund you really only I've only ever seen him in Canada.
And they're more expensive anyway. So they aren't attractive investments. From that point of view, or the third regime, the default regime ends up as you see here. And then the last sentence has tax rate starting at the highest marginal rate that were prevailing at that time plus an interest charge. So these are really nasty, and that the actual complexity of filing the appropriate tax forms is very high and expensive. So that it's a punitive tax system. And it's complicated to do it in the first place. Complicated equals expensive for the for the perfect owner, treatment of foreign retirement plans. So this is another thing where folks that could possibly step out of the US system need to be wearing
key keep in mind that with the exception of Germany, in the EU, UK, US tax treaties, by and large, do not recognize foreign retirement plans. So what does that mean? There's a whole flowchart that we've got when we talk about this, essentially, it's going to be treated as either an employee's trust or a foreign grantor trust or some other non qualified trust. And their contributions to that foreigner time delay may not be tax deductible, the growth may not be tax free, and the distributions likely will be taxable in some way. So not good.
NET investment income tax. So we all know about that, as domestic planners, this can hit on that individual that that couple that's moved abroad that's been away from us for years and years. Well, now they have to worry about net investment income tax, because they still are US tax residents.
Treatment of foreign trust, would you believe that this is this is incredible. It's the first time in my career, I've encountered this just later today, I'm going to be speaking with a couple a client of mine. He worked as a surgeon at the Mayo Clinic. He's been living back in Australia since the mid 1980s. It's been a way for decades. He had a very prosperous career as a surgeon back in Australia as well. But he has a mix of things going on he has three children, three children, not not five children.
Certainly three children. Two of them are US citizens. one of whom is not.
This is Edie has, before I get into that He has for the purposes of his estate planning is getting on in years as you would have gathered from from his travel history there.
He has a couple trusts that he wants to set up to distribute his assets evenly to his heirs, well, oh my goodness, this is going to be complicated because these are Australian trusts. He and his wife are still US citizens. So what does the US make of these Australian family trusts? They say we don't care about things that that are not
administered by a US citizen or in accordance with US law. Anything that's that's administered differently. We consider it to be a foreign trust, and we're going to tax it as such in a punitive manner. So this is a very complicated problem for this client where in their later years, they're having to face this decision about whether to relinquish their US citizenship, or take some other dramatic and likely expensive steps to figuring out their estate planning in a way that isn't going to to result in as I indicated at the outset of the presentation. Not getting into the estate tax complications from non reading
And aliens. But very briefly, we're looking at a 40% state tax rate for assets above $60,000 going to a non resident alien, so that third child that is not the US citizen could get slammed with taxes. So treatment of foreign trusts, that is a permanent issue, as I just explained in that in that example with a client I'm meeting with later today. So the sourcing of trust income is determined based on the type of income earned by the trust, ie, this is all sounding very expensive, and complicated. And that's really the takeaway here, filing your form 3520 synthetic or 20.
If the trust is a US grantor trust, it is disregarded for us income tax purposes, the income is attributed directly to the trust grant tool. Non grantor trust income is generally not taxed to us unless the source of income is from the US. Non grantor trusts I would say are irrevocable trusts. So if something has been set up, and it's no longer in control of that, that that grand tour, then you have a non grantor trust.
Right there businesses, CFC rules, again, more involved more complicated, we're not going to go through the definition of that. But essentially, that's going to get really complicated. And you're gonna see that a lot of Americans abroad who have businesses, and aren't even aware of the CFC rules, but they're complicated, and they're expensive. And they're punitive to especially if that us individual begins to open other entities with
or in other countries, that all of that becomes potentially us assessable income.
Hot act, I alluded to this earlier. So this is the exit tax that applies to long term residents who have stayed in the US eight of the past 15 years. There's a whole complicated formula that goes with determining that exit tax. Okay, so now we're coming to the major decisions that these couples the mixed nationality couples need to make really boils down to just these two, and that is to bring the you the non USBs into the US financial system or not to bring or remain, I would, I would reword that to bring a remain that Non Us spouse into the US financial system or not, and who holds what asset where.
So when to opt a non us spouse into the US tax system, the main advantage I would cite in from this a lot follows. But the main advantage I would cite would be the ability to file married filing joint because without that ability, you're really left with two options, one of which is especially attractive, but the first one would be head of household or married filing separately. So the single is not an option.
So to bring the US the non us first into the US financial system, the decision should be taken in light of a number of different things. Let's see what we have here. So the tax resident status, where where is this couple presently? Are they in the US? Or have they moved abroad? Where next? Where do we see them living long term, so if they plan to retire abroad, and there isn't a great deal of income? Well, there is a great deal of income attributable to one of those spouses than having a married filing joint status could be especially attractive. And if there isn't a great deal of income, then the situation flips. And you can say, well, gosh, the the tax administration costs are going to be really high. Is this something that we want to you know, the the benefits outweigh the disadvantages.
For more accumulation phase to couples, the relative incomes of the couple, I was speaking with a prospective client a few months ago, both doctors but with a young family, the female in that partnership had decided to to not be working as a physician. And so what we had is a and she was a green card holder and was still within a two year period to retain their green card. He's a US citizen, perfect example of where there's a big and important decision to be made about what we do with her do we move her back to the US and keep that green card or move them back to us keep the green card and put her on a pathway to citizenship or do we not do that she exit from the US system and he just files Head of Household or married filing separate.
Next relative wealth holdings in whose name our assets currently held, that's going to shape things future inheritances.
money coming to different individuals, personal attitudes towards marital sharing. I'm always horrified when I think of the example of,
of a family friend, where it turned out that they got divorced, turned out that the husband was was going bankrupt and was signing up, the wife is signing up lines in the wife's names and as costs her great financial difficulties as well. So this is another, certainly the dark side in the rear side of personal attitudes towards marital sharing. But that's the sort of thing that that you need to be mindful of in filing a joint tax return is that jointly and severally liable.
So I bring the US federal tax rates up here in order to point out the stark difference in the married filing joint versus married filing separate, right. So it's really when you see income,
pick up above work, what are we talking about here really above the 22% bracket? Or is it Excuse me? Where are we saying?
The punitive tax rate of Yeah, look at that. So you're hitting the 37% bracket fast sooner than at the individual rate.
And that it's it's particularly painful up here. Also, the 35% doesn't last as long as a consequence of that. But in either case, there's a whole bunch of deductions that are not available for married filing separate, so not a desirable tax rate, or tax status, excuse me to to have to be in as a result of the election was 6013 g election, which we'll talk about in just a moment.
So when to what a non us pass into the US tax system, it still won't make sense when the non us spouse is unlikely to choose to relocate to the US in the future is the breadwinner, ie they're out of the US system in the first place. So why would you bring them in owns a considerable amount of the couple's wealth and particularly with a non us spouse has a portfolio of pee fix is a major shareholder in a company is the beneficiary of a non us trust and may receive a an inheritance. So this is probably a slide worth staying on. Just to let these points sink in. So when it likely wouldn't make sense to opt them in. And we'll talk about that election in just a moment.
So this is the fact pattern that you see, then it doesn't make as much sense. So let's take that prospective client and I was referring to a moment ago and reverse it, imagine the breadwinner was the the non us person. So this the stay at home partner was the US citizen and the other person was able to surrender their green card and be done with the US and step out and, and opt not to be part of the US system. If they planned to stay in Australia, that would likely make the most sense in terms of simplifying their tax returns,
and and possibly eliminating any double taxation that may result, particularly with the foreign retirement plans, or any of these other four points you see below there.
So the 6013 g election, what is that about? This is a really interesting one, it's a once in a lifetime decision to opt in the non resident spouse to the US tax system. So why would you do that? Well, we've been over this already. The main reason why you would do it would be to obtain the married filing joint tax status for that non resident, spouse, simple as that. So you're reducing your us taxable income by doing that. So they're effectively electing to become a resident alien as far as taxes are concerned legal status as a whole different things we've learned. And they can do that by assigning and attaching a statement of their first joint tax return, stating that the couple not only elects to do so, but as a qualified to make the election.
A couple qualifies for this election if they married and neither spouse has ever made the election before even in a primary marriage is as is indicated in the first line here once in a lifetime election. So it's a it's a big deal with with wide ranging ramifications.
Next, who holds what assets were
given the implications of being brought into the US tax system as well as the cost and difficulty of attributing income to a non resident alien spouse for jointly titled assets? Thought and planning needs to go into who holds what where, so what do we mean by that? So if a couple were to move overseas, and they would hold a joint investment account,
In the US, and you, you now have a non resident alien spouse married to a US citizen spouse, well, how do we determine the income? And how do we tax that joint account? Again, and I hope I've really made this point here, the tax attribution is going to be complicated. What does that mean for your your CPA bill, it means it's going to be higher, and we want to simplify it as much as possible.
So to bring them into the US system or not. So here's an example we've got Chris and pat our favorite
asexual names here. So Chris and Pat, Chris here in this example is actually the female.
Chris is a is an Australian citizen, US permanent resident, and you can only technically stay that for up to two years at most. However, if you fail to file a form IFRS seven, then you will still be considered a US tax resident. That's another
important thing to be aware of. So cat is a US citizen Australian code resident, they currently live in New York and plan on retiring to Australia in the next few years, they have met kit, okay, they own an apartment together jointly titled they've got a bunch of investment accounts over joint summer individual retirement accounts, let's say a million apiece, and Chris is going to get a company pension of 60,000. They both get social security, and Christine's to decide whether she will attempt to become a US citizen before leaving the US surrender her green card or back in Australia, complete that 6013 j and opt to be a US resident alien for tax purposes. Those are really the three choices. Okay. Oh, and Chris expects to inherit 3 million from her family. Okay, let's have a look here. So let's frame it this way are the benefits or the ongoing benefits of married filing joint worth what other benefits Chris might obtained by staying out of the US tax system that's, that's what we're looking at here. So they could sell that apartment before leaving.
And they don't have to worry about that, they'll get the primary residence exemption for 1000s of gain. So that'll be nice to do before leaving.
But really, let's think about it in terms of what income they expect to have in retirement. So we mentioned that they've got a million apiece in retirement accounts, there's a company pension and Social Security, Social Security is us sourced income, the pension is going to be us sourced income as well. So now we're looking at let's add that 60,000 company pension, let's call it 30 a piece for Social Security that's another 60 word 120.
Plus rmds when they get to that point in their life, and suddenly it's looking as though married filing joint could be more attractive but it's it's really even an example like this, I'm at pains to to say it's clear cut one way or the other. Because in Chris's case, if she were to surrender her green card, he moved back to Australia, she becomes an Australian tax resident gets a step up in basis on all assets worldwide, and would be able to use the tax treaty interpretation to move her her retirement accounts back to Australia. This is actually the sort of thing that would really require a an individualized analysis that's kind of why we're here today right is as financial planners these are the analyses that we do for our clients and we would need to think about that so not only what what tax savings there might be on the the retirement account distribution, but also other hot exit tax considerations depending on how long Chris has been in the US so there might be an exit tax involved. So very complicated
and I'm saying here likely not beneficial for Chris to exit but you could argue the other side of that quite easily you can say well hold on we'll get a lifetime of of taxation of tax filings that needs to be submitted to the US. We're talking about perhaps marginal benefits for the the the the income tax rates that they're going to get on on what's coming from us sources. So it's it really does require an individual analysis
strategies to make the most of the mixed nationality status really it's about asset placement and account titling and spousal gifting. Let's get into that. So asset placement and account titling
I, I focused my practice on Australia as you can probably hear my accent I grew up in Australia, but lived in the US for 16 years. My practice our title strategy, Australia is focused exclusively on Americans in Australia.
strength in America. So my examples tend to be Australian. For better or worse, as I mentioned a moment ago, the ATR provides a step up in basis for assets acquired abroad.
So the tax basis of the asset is equal to its fair market value on the date that you resume Australian tax residency, which is not the case in the US, the US looks to your original basis in that holding. So there's some pre immigration planning that needs to be done if someone is moving to the US. But that's another whole topic.
The Non Us spouse, okay, because of this fact, at least in Australia, and it's going to be different than every other country that we're talking about. But in most other countries, this is, I believe this is this is how it's handled, it's going to present an opportunity to therefore hold capital gain assets, in that soon to be non us spouse person's name. So therefore, they get to step up and basis and assuming they're not subject to an exit tax, just another thing we need to be mindful of, then you may just have avoided capital us capital gains tax on it.
So the US the non excuse me, the non USPS is better placed from a tax perspective of owning foreign investments that would be considered prefix, foreign businesses, foreign trusts. And prior to a move, as you heard me say a moment ago, capital gain assets. However, there is the matter of how you actually get those assets into that person's name in the first place.
So we have of course, our lifetime exemption.
gifting to non US citizen spouse, unfortunately, that's limited to $159,000 annually. So the IRS or under this one, you can just shift, you know, use the unlimited spousal gifting to shift everything over to the spouse's name and then Wham o next year, move to some country where you get a big step up in basis. spouse wasn't a longtime resident us anyway. And you just avoided hundreds of 1000s of dollars of, of us capital gains tax. No, this is a process that needs to start earlier because of these and you will give limits. Another opportunity would be for qualified domestic trust. That's another matter. That gets more into the estate planning side of things, where the trust defers the estate taxes until the death of a non US citizen spouse
effectively acts as a substitute for the unlimited marital deduction, etc, etc. So like I said, we're not getting into the state tax situation there. So shifting gears, a little bit of information here on this masterclass, we've got coming up starting September 30. What would you come away from this course knowing? Well, these points right here then how to avoid the major pitfalls and obstacles facing your international and cross border clients. you'd learn in detail about the appropriate investment banking and real estate options for these x pack clients. You know how to manage these expert climate risks with the appropriate insurance products and foreign exchange strategies, how to perform your learn about how to perform basic international tax planning an expert clients income and assets including the topics that we've looked at in today's presentation,
and how to get help and know when to bring in an expert accountant estate plan or other specialists to assist. So the GFP designation is awarded upon passing the proctored final exam after completing that 10 lesson master class taught by a host these were the guest lecturers in the last class that we had including Andrew Fisher, author of the cross border family wealth guide partner 30 partners, and a very accomplished international financial planner Marina Hernandez. Same thing she was recently featured on Michael kitsis his financial advisor success podcast she runs a practice focusing on Americans in Switzerland and Swiss in the US. Alan koskie has had a storied career in international insurance and employee benefits teaches the sames the the what is it the certified employee benefits
I forgot the essence for but the seeds designation does immense I mentioned earlier Katrina Haines and Milan Warshaw, all experienced international CPAs and or a state and our tax attorneys. So you can register for the masterclass here, as I mentioned that the promo pricing will be going away tomorrow. So the least expensive time to join would be right now. And that concludes the presentation. Let me stop my screen sharing and I'll look at these questions that have come in through the chat panel and through the q&a panel. So
What do we have here? Okay, Terry Ritchie? Yes. Any net tax paid, including state taxes on income, that would also be okay. So Terry's providing a clarification. Here on the Canadian side, Terry's one of the most experienced advisors dealing in cross border matters. For for us and for Americans and Canada, Canadians in America. So it's just making a clarification there.
William shredder will receive a copy of the President. Yep, absolutely. If you become an open member, you will, Kate, how is a trust created by a US citizen grant or to benefit his daughters who are not US citizens tax assuming grant or is passed away? Okay, let's read this again.
How is a trust created by a US citizen grant or to benefit his daughters? Who are not US citizens?
How is the trust created by a US citizen grant or to benefit his daughters? Who are not US citizens taxed? assuming that's a difficult one? So if I understand correctly, it's exactly the same situation that i think i think i'm dealing with today with my clients where we have the the grand tours, the parents are the US citizens and and there's one child at least that's not
I would come to two ideas here. And that would be either relinquish that US citizenship altogether. Now, that's not going to be feasible if the grantor was still living in the US. So you can forget about that. Or, in this case, if they were still living with us, then
I would think an irrevocable trust of foreign nongrantor Trust would be the way to go. That's going to be difficult in different ways where you've got to have that conversation with the client. And so we've got to wherever you were thinking of the questing, has got to be really given now in order that that be not considered part of your estate.
Okay, I think that that deals with that question. Marty Jensen, what about crypto and blockchain related digital assets? That seems to be changing all the time, Marty? And I'm not sure in what context that question was asked anyway. So maybe you want to jump back online? We can take a look at that. Hi, Maria. If a non us spouse is due to receive a big inheritance,
excuse me, are the issues different if the inheritance is financial assets versus real estate that might be sold or rented?
Okay, so if a non us spouse is due to receive a big inheritance, yes, the issue is different. If the inheritance is financial assets versus real estate, so we're assuming the non resident alien to Mariah, the non us faster outside of the US altogether? The issue is different. Depending on the type of assets Well, it's going to depend on the size of those assets. So let's presume the the Not only is the individual outside of the US, but the assets of completely outside of the US as well.
I don't I don't think it would change this situation. I don't think it would i think that's that's precisely when you would not want to in voluntarily include that person in the US tax system because now you've introduced the possibility of, of us estate and possibly income taxes, but likely only estate taxes. Depending on the magnitude of that gift. It's probably not an excessive whatever it is this year, 11 point 7 million, but it doesn't seem like there's any benefit to that the benefit would come in, if if any of those inheritors were to become US citizens, then they would, would do well to to go about basis planning to make sure to get a step up in basis to the date when they become US tax resident.
Okay. Hi, Jeff. Good to see you again. Here. It's been a long time. Who is the kind of expert you just mentioned? Yep. That would be Terry Ritchie who appears for
for a chapter above there with a comment at 615 and Yep. Next, Daniel Bussmann, if someone works on a simple work visa for a couple of years, would they be considered permanent residents or temporary residents for tax post depends on simple work visa that's going to be temporary. I mean by definition if they've become green card holders, the proper term Green Card remember is is colloquial a green card is technically a permanent us permanent resident so if they're not a green card holder, they're here just on a visa visas are by definition
a temp temporary the temporary residence. Amy what is the annual gift limit to non spouse, non US citizens? Is it $15,000 Yes, it is.
$15,000 Hi again, Ryan, you're welcome, Kate, as a follow up, I meant How do the daughters get taxed if they aren't US citizens, but the assets are coming from a US trust. My apologies for the confusion. Okay. So in that case, it depends on
the not US citizens. Okay. So if here's the thing that the simple answer is, this is the $60,000 non resident alien issue, if if the parents are US citizens, the kids are not they assets rather than some kind of trust, and the kids will inherit that at some point in the future, then, as non resident aliens, they're looking at a 40% tax rate above $60,000.
So that would be a very nasty outcome. So that's where we get busy putting out on our planning hat talking to the appropriate international estate plans. And that is, in fact, by the way, my recommendation with that client and talk to you later today, we need to get an Australian international estate planner and a US international estate planner, because the domestic plan is in both countries, they just don't understand the interplay of the two countries because looking at tax treaty issues doesn't really come up so much.
doesn't really come up so much. If If
Sorry, I lost my train of thought there was marinas. marinas comment. That's
so so there we are, okay. If someone is a non us person and has a portfolio helping us, then it is the case that these 10 tax would be levied on anything over $60,000.
If someone is that has, if the beneficiaries are non US tax residents, that would be correct. If not, then
then it would it would pass according to normal estate tax laws.
Yeah, so going back to Amy's question that's correct about the 15,000, those two non spouses and 159 to non US citizen spouses. Marina, you would have seen that a little earlier on. Yeah, I did have that number up specifically for non US citizen spouse.
Okay, that seems to be Oh, hold on. So more on the basis of the beneficiary than the account owner? No, it's it's dependent on two things. It's depend on the status of the asset. In this case, you've mentioned to us service asset and then on the beneficiary if they are US tax residents or not. So that would determine that 40% of state tax above $6,000 is a good source to find these international cross border estate planning CPAs. Fantastic question, Maggie, that's kind of brings me back to that, that slide earlier on the the membership benefits, we actually keep a database of of those, those practitioners for associate and full members. So if you're a full member, then we share that with you. It's going to be different in every country. And as I was saying, Just recently, my experience has been that those excellent practitioners, the ones that are absolutely fantastic CPAs or estate planners tend not to be the best on the marketing side. And so they're hard to define, they haven't done you know, all the search engine optimization in the world, tend to only be known by word of mouth, so they're very hard to locate in the first place. we've compiled that list in order to make it easier for folks when they do encounter
someone from some from whatever country meeting whatever kind of expert. Okay, Paul, the non resident estate pays the tax on us as income regardless and says the beneficiary.
Let's Let's read that, again, the non resident decedent estate
pays the tax on the US side as income regardless of the status of the beneficiary. I am unfortunately running out of time and that's getting a bit too detailed into the estate tax side of things for me to to handle it this time in the morning 6:53am it is here. I want to thank you so much for joining me here today. And I hope that that we can see you in the GFP Institute and and hopefully the masterclass starting September 30. Remember super early bird right finishes tomorrow. Thanks for watching. Have a wonderful day.