Estates, Trusts & Gifts.

• Author: Anderson, Kevin

US estate tax: Not just for US citizens

The U.S. tax system is based on a citizenship model rather than a residency model, so its reach is potentially worldwide. Domicile and residence are irrelevant for U.S. citizens, who are subject to income tax on their worldwide income, to gift tax on their worldwide gifts, and to estate tax on their worldwide estate. So how do non-US. citizens become subject to U.S. estate tax on all or a portion of their worldwide estate? The application of U.S. estate tax laws to a non-US. citizen depends on domicile, situs of assets, and application of a treaty.

Domicile matters

A non-US. citizen who is domiciled in the United States (a U.S. domiciliary) has the same lifetime exemption amount as a U.S. citizen and is similarly subject to estate tax on his or her worldwide estate (Sec. 2031(a); Regs. Sec. 20.2031-l(a)). So how is domicile determined for a non-US. citizen?

A person acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of later removing therefrom. Residence without the requisite intention to remain indefinitely will not suffice to constitute domicile, nor will intention to change domicile effect such a change unless accompanied by actual removal. [Regs. Sec. 20.0-l(b) (1); Regs. Sec. 25.2501-l(b) contains nearly the same language] Domicile requires both physical presence in a specific location and the intent to make that physical location one's home. Intent may be established by the presence of numerous factors, including but not limited to the following:

* Location and duration of current residence;

* Location of medical providers, civic organizations, and employment;

* Driver's license, voter registration, and vehicle registration;

* Place of business;

* Green card or visa;

* Declarations of intent;

* Bank accounts;

* Motives of changing residence; and

* Renting versus owning a home.

No single factor is necessarily determinative, but obtaining a green card (permanent residence visa) generally would lead to the conclusion that a non-U.S. citizen is domiciled in the United States. The determination of a non-US. citizen's domicile is a facts-and-circumstances analysis, subjective and unique to the individual. The substantial-presence test, which is applied for federal income tax purposes, is not relevant in the determination of a non-U.S. citizen's domicile for estate tax purposes.

If it is determined that a non-U.S. citizen is not domiciled...