Global Head of Cross Border Wealth Planning
September 12, 2018Posted InWealth Advisory
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Non-US persons may be subject to US transfer taxes if they own US situs assets
Many people assume they are solely subject to the tax rules of the country in which they reside. While this may seem logical, it is not always correct. Individuals who are neither resident in, nor citizens of, the US may nonetheless be subject to US transfer taxes if they own assets considered to be ‘situs’ – legally located – in the US and held in their personal names.
US situs assets include real estate, tangible property – such as jewellery, furniture, and artwork – as well as shares in US corporations. The latter is the most widely held type of US situs asset. Despite this, however, most people are not aware of the tax implications of US equity ownership. For example, shares in a US based company that trades on the New York Stock Exchange owned by a Hong Kong citizen who has never set foot in the US – even if held via a Hong Kong brokerage account – could be subject to US estate tax upon the death of the owner before transfer to the owner’s heirs.
US situs assets worth more than $60,000 held in an individual’s personal name can be subject to US federal estate tax of up to 40%.
In addition, US situs assets owned in an individual’s name may need to get through probate. US probate is a public process that can draw unwelcome scrutiny of the deceased’s estate and of surviving family members at what is already a difficult time. However, awareness of these rules and careful planning can help to mitigate the burden and avoid unnecessary publicity.
Rather than owning US assets in one’s own name, a Private Investment Company (PIC) can be used in order to potentially eliminate US estate taxes. A PIC is a corporation set up in a jurisdiction outside the US to hold investment assets. While the PIC legally owns the assets transferred into it, the owner of the PIC’s shares has the ultimate rights of ownership. Since the US assets are legally owned by the PIC rather than by the individual, there should be no US estate tax exposure at death. As well as wealth protection benefits, owning assets via a PIC can help enhance financial privacy. Despite these potential advantages, a PIC is not appropriate in every situation. Case-by-case analysis by professional advisors is therefore essential.
The first step is to make yourself aware of which of your assets might be considered to be US situs assets for US estate tax purposes. Consultation with an attorney or accountant should follow, taking into account all of your unique personal circumstances. Finally, an appropriate plan for you and for your wealth can be created. Such a plan can provide you with peace of mind while protecting your wealth, your heirs’ inheritance, and the privacy of all.
The views expressed herein are for informational purposes only and are those of the author and do not necessarily reflect the views of Citigroup Inc. All opinions are subject to change without notice.