International Moves.

• Author: Zhu, Jie
• Position: Estateplanning

Estate & Gift Tax Planning Considerations for Cross-border Families

"I'm retiring and moving to Italy." "We're applying for green cards and moving to America." "I was assigned to work in China, but my family will remain in the U.S." "I'd like to give up my citizenship."

These are the kinds of statements I hear when talking with clients. Often, these statements precede, or trigger, questions related to moving around the world or status changes. Considering the global nature of society today, it's exceedingly common that someone live and work in multiple countries throughout their career, or that members of a nuclear family could live and work in different countries. How to juggle and coordinate tax rules in multiple countries can be challenging at best and often confusing. Clients almost never fail to ask questions about what international moves mean for their specific tax situation. What's often being overlooked, however, is the question of estate and gift tax impact for cross-border families.

To Each Their Own

Each country has its own rules and requirements when it comes to taxes. Understanding the rules in each jurisdiction involved, and planning in advance, can help avoid uncertainties and unnecessary legal proceedings and reduce tax burdens.

Nationality (citizenship), residency and domicile are important factors many countries consider when determining tax residency for estate and gift tax purposes. For example, in the United States, when it comes to estate and gift tax residency, the determination focuses on intention on "domicile." What's domicile? It's the country that a person treats as his or her permanent home. In other words, where the taxpayer is planning to live for the rest of his or her life.

Being a tax resident for estate and gift tax purposes can have significant impact on how estates and gifts are taxed. It also may impact how the estate is allocated, since many countries have rules regarding forced heirship where the laws require that assets be passed to certain heirs - which could be dramatically different from what the decedent might wish to do. Some countries may require that estate taxes or gift taxes be borne by the decedent or donor, while other countries may require that the taxes be paid by the recipient.

Domicile & Situs

If a taxpayer is domiciled in the U.S., the person is subject to U.S. estate and gift taxes for their worldwide assets; meanwhile, the taxpayer will have the benefit of a lifetime exemption...