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US Estate Tax, Gift Tax & Trusts

Tax planning and tax compliance issues arise with many day-to-day events. This is especially true of the US tax system and is particularly relevant to today’s multinational families.

Life events that may affect individuals:

  • Marriage
  • Birth of a child
  • Divorce
  • Death
  • Giving or receiving a gift or inheritance
  • Settling up joint accounts
  • Purchase of a home
  • Taking out a mortgage
  • Portfolio investments
  • Setting up a business structure

Failure to address the tax issues that arise with each of these events, or failure to take the opportunity to plan, can lead to unnecessary tax and compliance issues.

Planning ahead with key events in mind:

  • Marriage, birth of a child or divorce
    – In any of these events, an individual should update their will and review their estate plan
  • Divorce
    – There can be substantial US tax issues resulting from property settlements and alimony
  • Gifts and inheritances
    – Transfers during life or at death may be subject to a Gift or Estate Tax
    – The receipt of gifts may also have compliance issues
  • Purchase of a Home/Taking out a Mortgage
    – Gain on the sale of a primary residence may have tax implications where the property exists, and, for US persons will have tax implications no matter where the property is
    – The repayment or refinancing of a foreign currency mortgage will have implications for US taxpayers
  • Portfolio investments
    – From a US tax perspective there are certain types of investments that will have very unfavorable tax consequences
    – Income and gains from non-US investment funds are taxed at the highest marginal rate, with substantial compliance issues as well
    – Non-UK investment funds have less favorable UK tax treatment than UK funds
  • Business structures
    – The type of entity that best suits overall business and financial needs may vary
    – The entity may not be treated the same in different jurisdictions

Gift and Estate Tax

Transfers during life or at death will have either Gift or Estate Tax implications.

US taxpayers currently have a lifetime Gift/Estate Tax exemption of almost $11.2 million (this amount is adjusted annually).

In addition, for Gift Tax purposes the US taxpayer is allowed an annual exemption for gifts of $15,000 (also adjusted annually) for each gift recipient.

How US expatriate tax affects spouses

Gifts to spouses are tax free if the recipient spouse is a US citizen. Citizenship is the key here, as the tax-free treatment will not apply if the spouse is a US taxpayer, but not a citizen. An annual exemption amount, however, is allowed for gifts to a non-US citizen spouse. This amount is currently $152,000 (which is adjusted annually).

For US Estate Tax purposes, transfers to US citizen spouses are tax free. However, just like gifts to non-US spouses, transfers at death to non-US spouses are not tax free. (It is possible, however, to defer the tax on such transfers through the use of certain trust structures.)

Transfers can be subject to tax liabilities

Transfers by taxpayers who have expatriated and who were subject to the US Exit Tax, will be taxable if made to a US Person. The US Person will be liable for the tax.

Transfers during life or at death by non-US residents will also be subject to tax. While the taxpayer is allowed the annual exemption for gifts, the exemption amount at death is only $60,000. While not as extensive as the Income Tax treaty network, the US has entered into a few Estate Tax treaties which may impact the calculation of such transfers.

Planning ahead is important – we can help

We can assist with a complete review of the taxpayer’s income and estate plan and assist in the development of a lifetime gifting program, or appropriate estate structure to minimize the overall impact of the US Estate and Gift Tax system. We also can prepare Gift Tax returns and Estate Tax returns for both citizens and non-US residents.


Individuals may consider the use of a trust for many reasons, including asset protection and generational planning. A trust may also be desirable to ensure effective management of assets and to provide benefits for income tax and estate tax purposes. However, the US tax treatment of trusts, trust settlors and beneficiaries can be quite complex; and there are also substantial compliance issues that affect US taxes on foreign income.

We work with many different types of trusts, including:

  • Complex trust structures
  • Foreign and domestic trusts
  • Grantor and non-grantor trusts

Our advisory services include:

  • Advice on the US tax characteristics of foreign trusts and the annual filing and compliance requirements of the trusts and their beneficiaries
  • Review the structure and terms of the governing trust agreement for suitability, and to determine if changes justify revisions to the trust arrangement
  • Advice on timing and form of distributions to beneficiaries (e.g., cash, property or loan)
  • Advice on UNI (Undistributed Net Income), DNI (Distributable Net Income) and PTI (Previously Taxed Income)
  • Advice on changes to structure as and when the settlor/beneficiary dies
  • Assisting the trustee with its obligations under  FATCA (see also FATCA)

Compliance and preparation of forms:

  • Foreign grantor trusts, Form 3520-A
  • US beneficiaries of foreign trusts, Form 3520
  • US trusts, Form 1041
  • Foreign trusts, Form 1040NR
  • Trust beneficiary statements

From global, to personal

We work closely with advisors from other jurisdictions to ensure our clients’ goals are accomplished from a global perspective. Weaving a path through these complex areas of law requires sophisticated planning and sensitivity to the many family and personal issues related to these matters.

Did you Know?

  • Fact Seven

    Thanks to FATCA banks must disclose their American account holders to the IRS or local tax authority.
  • Fact Six

    The IRS is actively looking for non compliant US persons.
  • Fact Five

    It takes an average of 16 hours to do IRS Form 1040.
  • Fact Four

    There are over 500 IRS tax forms.
  • Fact Three

    Since 1916, illegal income has been taxable.
  • Fact Two

    US persons must file tax
    returns no matter where they live and work.
  • Text One

    7 million Americans abroad
    only 500,000 compliant