Newman No Title
| Jurisdiction | Vermont,United States |
| Citation | Vol. 2001 No. 12 |
| Publication year | 2001 |
December 2001. Newman No Title
John C. Newman, Esq.
In this short piece, I would like to help Vermont lawyers spot international legal issues that signal that specialized treat-ment by a lawyer or accountant conversant in U.S. international taxation of gifts, trusts, and estates should be solicited.
It is truly remarkable how well some Canadians, English, Irish, Australians, New Zealanders, and other non-Americans can learn to speak without an appreciable foreign accent. Without some indication in your will and trust files as to whether you have inquired as to the resi-dency and citizenship of your clients before you prepare their wills and trusts, you may not be protected if some rule of U.S. international tax law or foreign tax law results in an unanticipated expense for the clients or their heirs.
For example, for U.S. estate and foreign inheritance tax purposes, it is important to determine whether your client is or is not a U.S. citizen. Even though the non-U.S. citizen may have resided in the United States all of his or her life, certain tax con-sequences stem from the simple fact that the individual is not a U.S. citizen. In addition, certain countries, such as the United Kingdom, have a long-term track-ing system for their former residents. Under U.K. inheritance tax law a U.K. cit-izen could reside in the United States for ten or fifteen years without being deemed to have renounced U.K. domicile for inheritance tax purposes by adopting what U.K. law terms a new "domicile of choice" in the United States. The United Kingdom imposes its inheritance tax on the worldwide assets of its residents at a flat rate of 40% on the amount of the dece-dent's net taxable estate that exceeds $350,000. This compares unfavorably with a U.S. exclusion amount of $1 mil-lion (beginning next year), increasing to $3.5 million in 2009.
Income tax residency rules also are important. An error I frequently encounter in my law practice involves the unin-formed advice of real estate agents, local business people, and some local lawyers, who believe that a non-citizen can be pres-ent in the United States for up to 183 days annually without becoming a tax resident of the United States (and therefore subject to U.S. taxation on their worldwide income, wherever derived). The actual rule is best expressed as follows: profes-sional accountancy or legal advice is nec-essary if a non-citizen will be physically present in the United States annually more than 122 days on a regular basis. The "183 day rule" is subject to a three-year look-back period, and days of presence are measured on a weighted average basis.(fn1)
Another frequent error involves misun-derstanding the significance of a "green card" (lawful permanent residence for U.S. immigration purposes). An individ-ual is a tax resident of the United States no matter where he/she resides if that individ-ual has a green card, or had a green card and has not officially renounced official resident status in the United States.(fn2) For example, a citizen of Bermuda who holds a green card is subject to U.S. federal income tax on worldwide income even though he or she lives in Hamilton, Bermuda for the entire tax year. While an applicable tax treaty may change this result for covered individuals, Bermuda does not have a general tax treaty with the United States.
An attorney can best protect against malpractice in this area by using a ques-tionnaire for estate planning purposes or (at least) making...
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