Wealth Transfers & Expatriation
Wealth Transfers & Expatriation: The IRS makes expatriation difficult. When a person wants to expatriate, one of the key components in the decision-making process is what is the U.S. Person‘s net worth. Many clients who expatriate may be close to, or near retirement — and winding down the income earning portion of their career. But, while the amount of annual earnings may result in a net-investment tax liability that does not approach the covered expatriate threshold, many clients have amassed significant assets and investments, and their net-worth will far exceed the $2M covered expatriate test threshold.
Expatriating Spouse Wealth Transfer
Can the Expatriating Spouse simply transfer all their assets to the non-expatriating spouse?
U.S. Citizen Non-Expatriating Spouse
When the non-expatriating spouse is a U.S. Citizen, the wealth transfer rules are relatively lax.
The Unlimited Marital Deduction allows one spouse to transfer all their wealth to the other spouse, without any tax implications.
For example, Michelle is a U.S. Citizen. She has $8M in assets.
Her spouse is a U.S. Citizen.
Therefore, Michelle can transfer $8M to her spouse without any issue. Down the line (absent other planning), the spouse will then have to develop a strategy to reduce estate tax liability in the future, unless the exemption is still above her net worth at that time.
Why does the IRS allow this unlimited transfer for U.S. Citizen recipient spouses?
The reason is because since the non-expatriating spouse is a U.S. citizen, the IRS and U.S. Government are not concerned about being able to track the wealth.
And, even if the U.S. Citizen tried to hide the money overseas, the new FATCA laws make it nearly impossible for a U.S. Citizen to open a foreign account – even under the best of circumstances.
Non-U.S. Citizen Non-Expatriating Spouse
When the non-expatriating spouse is a Legal Permanent Resident/Green Card Holders and not a U.S. citizen, the rules for transferring to the non-expatriating spouse are more complex.
There IRS limits the gift amounts to the non-U.S. Citizen Spouse.
In other words, there is no unlimited marital deduction when the recipient spouse is not a U.S. Citizen.
The expatriating spouse can gift up to $157,000 a year to a non-citizen spouse (This amount adjusts for inflation).
When the gift and estate tax exclusion is as high as it is now, this is not as big of deal. But, the exclusion amounts tends to see-saw when a new party gets into the oval office.
Using the same example from above, Michelle can only transfer up to $157,000, before it begins to chop away at the gift and estate tax exemption.
Transferring assets to non-U.S. Citizen spouse, generally requires more complex planning, such as creating a QDOT.
Interested in Expatriation from the U.S.?
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Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
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