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Estate & Gift Tax Planning Considerations for Cross-border Families
BY JIE ZHU, CPA
" 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.
Being a tax resident for estate and gift tax purposes can have significant impact on how estates and gifts are taxed.
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 available (currently $12.06 million). If a taxpayer is domiciled in a foreign country, they will be considered a nonresident for U.S. estate and gift tax purposes and the person will be subject to U.S. estate and gift taxes on U.S. situs (the place to which, for purposes of legal jurisdiction or taxation, a property belongs) assets only, but the $12.06 million lifetime exemption is not available in this case.
Situs of assets plays an important role in estate and gift tax planning. Using the U.S. as an example, real estate properties located in the U.S. are always considered U.S. situs property for estate and gift tax purposes. It’s irrelevant whether the taxpayer is a U.S. tax resident. U.S. corporation stocks are treated in the same way as real estate for U.S. tax residents, but differently for non-residents. U.S. corporation stocks are not U.S. situs property when a non-resident gifts the shares. However, the stocks would be considered U.S. situs property for estate tax purposes when the nonresident holds the shares upon death.
The U.S. has estate and gift tax treaties
with various countries. The treaties provide a certain level of protection for specific taxpayers with assets in multiple countries and should be considered in planning.
Considerations for Nonresidents
As for estate and gift planning for nonresidents, several factors should be considered. Some are the same as would be considered by residents formulating their estate plans, such as family dynamic, type of assets and income that would be generated by certain assets.
Conversely, some factors are unique to nonresidents. Under U.S. tax laws, for U.S. gift tax purposes nonresidents can gift foreign assets to U.S. residents without being subject to U.S. gift tax. This provides opportunities for nonresidents to gift
becoming U.S. tax residents for estate and gift tax purposes.
Trusts are commonly used in domestic estate and gift planning. Similarly, trusts can be used for international estate and gift planning as well. What type of trust is used depends upon the specific situation. Both foreign and U.S. trusts could be considered.
A U.S. domestic trust may be created and funded by a foreign person for benefit of U.S. beneficiaries, while a U.S. resident may create a foreign trust for benefit of U.S. or foreign beneficiaries. The gifts mentioned above can be made through trusts when appropriate. However, one should pay close attention to U.S. trust tax reporting if one holds foreign assets. As mentioned, U.S. tax laws—such as rules related to controlled foreign corporations, passive foreign investment companies and foreign bank accounts—are quite complex with respect to foreign asset reporting, and the penalties for misreporting could be significant.
Life Insurance No Longer Discussing ‘Trusts’
Including life insurance in your planning strategy, such as leveraging a Private Placement Life Insurance Trust (PPLI), also can be effective. PPLIs provide flexibility as to the types of assets you can contribute into the trust, particularly if the trust is set up in certain foreign jurisdictions. However, there are questions to consider when determining whether setting up a PPLI in a foreign jurisdiction actually makes sense.
• Can the taxpayer easily deal with dispute(s) in the foreign jurisdiction?
• What is the tax impact on the taxpayer in the country in which they are considered a resident?
Because navigating laws and regulations in different jurisdictions can be so convoluted, engaging and coordinating with advisors who are well-versed in local rules is crucial to effective planning involving cross-border issues. To be clear, there is no “one size fits all” plan or solution. Taxpayers should be aware of all the factors and consider the tradeoffs that may be necessary during the planning process. Through review and planning, they may just find a balancing point.
This material is provided for informational purposes only and is not intended to provide, nor should be relied upon for, tax, legal or accounting advice. You should consult certified tax, legal, and/or accounting professionals prior to engaging in any transactions.
Jie Zhu, CPA is a partner with Petrinovich Pugh & Company, LLP. You can reach her at
A Deeper Dive Into the $300 Billion Package
by Jason Fox
In mid-June the Governor and the Legislature passed a framework of a state budget However, the substance of much of the budget a series on a largely partisan vote. In the end, the
to meet constitutional deadlines.
package came later in July when of budget trailer bills was passed
package outlined a record $300 billion state budget that addresses a broad list of policy priorities.
A key piece of the budget package is $9.5 billion in inflation relief via the Middle Class Tax Refund implemented by the FTB as outlined by AB 192. Nearly 23 million taxpayers will receive a refund payment based on their adjusted gross income and whether they have a dependent. Payments may be as much as $1,050 for joint filers with a dependent with an income of $150,000 or less and will decrease for higher income earners. The FTB expects to begin payments by October of this year. Qualifications and estimated payment amounts can be found at
Additional tax related provisions are included in AB 194, the tax policy budget trailer bill. Major components include:
• Extension of California state tax rules for Paycheck Protection Program (PPP) loans issued after March 2021 as part of the PPP Extension Act, the last round of the federal relief program. Prior to AB 194, California had only provided state tax relief for PPP loans issued before March 2021.
• Beginning after Jan. 1, 2022, a one-time penalty abatement for failure-to-file or failure-to-pay timely for individual taxpayers that have not previously been granted abatement, have filed all required returns, and have paid or is in a current arrangement to pay all outstanding tax liabilities.
• Apartial tax exemption for diesel fuel for the period Oct.1, 2022, through Oct. 1, 2023.
• Expands the Main Street Small Business Tax Credit by allowing it to be claimed on an amended return for 2020 and 2021 and extends the credit until Dec. 1, 2026.
• Expands eligibility for the Homelessness Hiring Tax Credit.
• Extends the California Competes Tax Credit by five years, through the 2027–28 fiscal year.
Ballot Measures for Nov. 2022
In addition to Legislative, Congressional, and constitutional office races, California voters will decide on seven ballot initiatives. As the Nov. 8 general election gets closer, these initiative are likely to get significant attention from proponent and opponent campaigns.
Prop. 1: Reproductive Freedom
A late add to the ballot, this proposition was added by the Legislature in response to the U.S. Supreme Court overturning of Roe v. Wade. Specifically, this would add abortion safeguards in the California constitution by barring the state from denying or interfering with a person’s right to choose an abortion or contraceptives.
Prop. 26: Authorize New Types of Gambling at Tribal Casinos
Sponsored by some of the state’s large tribal governments, this would legalize in-person sports gambling, roulette and other dice games at tribal casinos and designated horse tracks. It’s expected to raise tens of millions of dollars in fee revenue for the state general fund.
Prop. 27: Authorize Online Gambling
Sponsored by online gambling companies (FanDuel and DraftKings) would allow online sports betting through certified gaming tribes and large online betting companies. This is expected to generate hundreds of millions in fee revenue for housing and homelessness services.
Prop. 28: Funding for School Arts & Music Programs
This would set aside 1 percent of the required state and local funding (roughly $800 million to $1billion) for education for arts and music programs—particularly for schools in underserved communities.
Prop. 29: Labor Rules for Kidney Dialysis Clinics
This would add additional labor and staffing requirements for kidney dialysis clinics. This is the third time this type measure has been before California voter. The prior two were rejected in 2018 and 2020.
Prop. 30: Tax on Millionaires to Fund Wildfire Prevention & Electric Vehicle Infrastructure
This is a proposal to impose a new 1.75 percent tax on individuals with income more than $2 million per year. The $3-4.5 billion in new revenue would be directed toward incentives for zero-emission vehicles and the related charging infrastructure. Resources also would be directed towards wildfire mitigation.
Prop. 31: Referendum on State Law Banning the Sale of Flavored Tobacco Products
Asks voters to reconsider a 2020 state law that prohibits the sale of flavored tobacco products, regardless of how it is consumed (chewed, smoked or vaped).
Jason Fox is CalCPA’s vice president of government relations. You can reach him at