Q: What is the best way for my parents in China to give me money for buying a house in the United States?
My parents in China are ready to transfer $20,000 to me as a gift because my boyfriend and I plan to buy a house together. So far though, I'm just in the U.S. on a visitor's visa. How should I handle this to minimize tax on the gift? Should I ask them to transfer it into my boyfriend's bank account?
A: Having your parents transfer $20,000 to a bank account inside the U.S. is not necessarily a good idea from a gift tax standpoint. If you are here in the US on a visa (rather than a green card), it might be a better idea for them to transfer the money to you in China (for example, to your bank account in China, assuming you have one). That way the entire gift takes place "offshore", and would not be subject to US gift taxes.
Examples
Here is a sketch of three possible scenarios:
- Scenario 1: Having your parents make one $20,000 transfer to a bank account inside the U.S. -- since gift tax limit is $13,000, your parents would owe gift tax on the remaining $7,000. They would need to file a gift tax return (Form 709) and if the cumulative amount of the gifts exceeded $60,000 then they would have to write a check to the IRS.
- Scenario 2: Having each of your parents transfer $10,000 to a bank account inside the U.S. -- since each transfer is under the $13,000 limit, your parents would not owe gift tax.
- Scenario 3: Having your parents make the transfer to your bank account in China -- there is no limit on the transfer amount, but you may have to report the existence of the account under the "FBAR" rules if you are required to file a US income tax return
An FBAR is a Report of Foreign Bank and Financial Accounts. U.S. tax law requires that this report be filed by "any United States person who has a financial interest in or signature authority or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year."
Even though your parents are non-resident aliens for US tax purposes, if they make the gift in the U.S. (by depositing it to a U.S. bank, for example) they are subject to the $13,000 annual gift tax exclusion -- they would also have to pay gift tax on the difference. Therefore, another suggestion would be for your father to gift $10,000 to you and then for your mother to separately gift $10,000 to you. That way, each gift would qualify for the gift tax exclusion under US laws.
New Guide: Buying U.S. Real Estate When Your Child Studies in America
International Estate Planning and Structuring Real Estate Ownership
Risks and Rewards of Buying U.S. Real Estate as a Non Resident Alien
The Sasakis Learn Risks of Online Legal Forms: An International Estate Planning Example
All the best,
This article is part of our series of articles on the risks and rewards of buying U.S. real estate as a non resident alien.
Accountants know a lot about keeping track of your money, but estate planning isn’t their primary job. By working with an attorney experienced in international estate planning law, you can get all your questions answered and gain peace of mind that your loved ones will not face a snarl of tax issues down the road.
If you own property outside of the United States, it’s even more important to have a network of experts to call upon when you have an issue. Not all countries recognize trusts and other tools that work here. To reduce or eliminate tax liability, you may need to choose an appropriate ownership structure. Keep in mind that the net tax savings will vary depending on the ownership structure as well as individual circumstances.
Ownership structures include:
- Individual
- Pass through entity (limited liability company or partnership)
- U.S. corporation
- Foreign corporation
- Foreign trust
- Real estate holding company
Not all of these structures will avoid U.S. estate and gift tax liability and some provide better income tax benefits than others. It is important that you seek competent legal advice before you purchase U.S. real property (or as soon afterward as possible).
Resources
Examples provided in our guides and here on this blog help illustrate this point:
All the best,
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A stack of forms can’t “know” the nuances of your situation. Work with an attorney experienced in international estate planning to craft a plan that fits your unique circumstances. Protect your loved ones and assets by examining your options now »
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This fictional example is drawn from our guide Buying U.S. Real Estate When Your Child Studies in America.
Hiro Sasaki, 19, will be a freshman at Stanford this fall (Class of 2015). Hiro’s parents, Emiko and Dai Sasaki of Tokyo, are looking to purchase a place for Hiro to live. They want to do everything they can to help him succeed, and that means providing a study environment free of the distractions common in a dormitory.
$675,000 cash for Palo Alto townhouse
The Sasakis identify a townhouse in Palo Alto listed for $675,000. It’s close enough for Hiro to bike to campus. Dai pays the listing price in cash, putting the title in his name.
Dai reads online about the importance of having a revocable living trust in the U.S. Dai has seen those online legal programs where it is possible to purchase do-it-yourself-forms. To Dai it seems like a good option. He uses a do-it-yourself form to establish the trust.
Establishing trust does not lower Sasakis' tax liability
Unfortunately, while a revocable living trust is useful for avoiding probate, it does not lower his tax liability. Dai still has only a $60,000 exemption. So if something happened to Dai, his family will have a massive estate tax bill – in the neighborhood of $142,800.
The online legal program where Dai purchased his form wouldn’t “know” about the unique circumstances he is in. And despite diligently completing the form he downloaded, he is about where he started off with respect to his tax liability.
A minor car accident in Tokyo gets Dai thinking again. He realizes he has not protected his loved ones from a big tax bill, should anything happen. He finds a Bay Area attorney experienced in international estate planning, and gets a sound plan in place.
Takeaway
This example is made up, but it's true that a stack of forms can’t “know” the nuances of your situation. If your situation is anything like the one described here, consider working with an attorney experienced in international estate planning to craft a plan that fits your unique circumstances.
All the best,
This article is part of our series on Buying U.S. Real Estate When Your Child Studies in America
Trend: more NRAs purchasing in college areas
The June 29, 2011 article “U.S. is Top Choice for Real Estate Investors,” in Generation America, has some interesting facts and figures from a survey was conducted by the National Association of Realtors as part of its 2011 Profile of International Home Buying Activity.
Among the survey’s findings (paraphrasing): real estate in the U.S. is the top destination for foreign buyers; the number of foreign exchange students at U.S. colleges and universities has increased the demand for real estate by foreign buyers; and some foreign families are purchasing U.S. properties in college areas so their child has a place to live.
The president of the National Association of Realtors observes that, "the U.S. has always been a desirable place to own property and make profitable investments. In recent years, we have seen more and more foreign buyers coming here to take advantage of low prices and plentiful inventory."
Why putting off estate planning is especially risky for NRAs
No one likes to think about dying someday. Some people even consider it bad luck to discuss death. But family members who have come to the United States from elsewhere may find U.S. tax law quite different than what they were used to.
It’s important to set aside our emotions and consider a key fact: Federal estate and gift tax laws impose onerous restrictions on non-citizens (even if you have a “green card”).
Consider:
- Outright gifts during your lifetime to a non-U.S. citizen spouse – including making him or her joint owner of certain assets – can trigger gift tax problems immediately.
- A non-resident non-citizen with no green card who bought a $1.5 million house with cash, intending to leave it to one of his children through a will or trust could trigger an estate tax of $495,000. With advice from the right expert, she could avoid that tax bill.
- Likewise, gifts at death to a non-citizen spouse may not qualify for the “unlimited marital deduction.” Your unsuspecting widow or widower may be forced to pay hundreds of thousands of dollars in estate taxes shortly after your death.
- If an investor buys a $1.5 million property in U.S. and dies owning it without ever having put it in a trust, the probate cost alone could be as much as $28,000. If that investor also happens to be a non-resident alien, the estate taxes could be $495,000.
Taking steps to protect your loved ones and your assets
Even if your estate is modest, the tax effects of poor planning on NRAs can be devastating. Choosing the right lawyer takes an investment of time and money, and it is a wise investment. We can set up documentation, write any complex agreements, and take other steps to help protect you. But you need to take the first step: contacting us. Protect your loved ones and your assets by examining your options now. Call +1 650 325 8276 or get started at our website »
All the best,
Presenting our newest guide on international estate planning
We've just posted a new international estate planning guide, Buying U.S. Real Estate When Your Child Studies in America. (Note: If you get value from it, would you please recommend it to others on Facebook, Twitter, or other places you're connected to friends and family? Thank you!)
In my 20+ years as an estate planning attorney, I've found that most families – and perhaps especially nonresident aliens (NRAs) – want straight talk when it comes to legal and financial matters. And in this guide I've tried to dispense with legalese and give you exactly what the title says.
Don't "fly in the dark"
Too many parents “fly in the dark” when it comes to securing the financial future of their loved ones. As someone who works on estate tax and probate issues with NRA families, I hear heart breaking stories of families having to pay dearly during painful times, just because they never found a trusted advisor to ensure they keep all the assets they deserve.
Five fictional examples illustrate key issues NRAs face
In this guide (as well as a previous guide, U.S. Gift Tax and Estate Tax Planning for Non-Residents and Non-Citizens), you'll find examples of nonresident aliens from several countries facing key questions, issues and choices. The examples are made up, but if your situation is anything like ones presented, you could probably use help from an experienced international estate planning attorney.
Comparing your options
Unfortunately, with the way that most international estate planning lawyers present themselves to the world, it seems like we’re all the same. In reality, each lawyer does have certain qualifications.
Some might be experts at tax law, or in working with corporations or with debt collection, or a whole variety of different things…but are they really providing what you, the family person, wants and needs?
Protect your loved ones and your assets by examining your options now
I hope this free guide and checklist opens your eyes to the importance of setting up your plan. My team and I can set up documentation, write any complex agreements, and take other steps to help protect you. But you need to take the first step: contacting us! Please call +1 650 325 8276 or get started using a simple form here at our website.
All the best,
Everyone with a high net worth should put together an estate plan. Here is an example showing how people with complex financial circumstances benefit from finding the right legal advisor. For more examples, see my latest guide and checklist.
Meet Sanjay and Ling, U.S. residents with young children born in the U.S.
Meet Sanjay and Ling, young, bright, hard working professionals. They don’t think of themselves as rich, but they have substantial savings. They want to make sure their two young children are cared for if anything bad happened. They are not U.S. citizens, but their children were born in the U.S.
An experienced estate planning attorney will know which laws apply. And by establishing a long-term relationship, the attorney can help Sanjay and Ling update their plan as their family grows, as their finances change, and as they move to new places. They will also counsel fiduciaries in connection with carrying out legal responsibilities - whether they are personal representatives, trustees, or guardians.
If their proposed guardians don’t live in the U.S., the kids are at risk of having the Court not permit them to be taken out of the U.S. – or at least there might be a protracted guardianship dispute/case. There are also issues with making sure the kids have passports that permit them to travel with someone other than their parents.
How does the attorney know what Sanjay and Lin want?
First he or she works with the couple to gather personal data and financial information. This is their estate plan, so the attorney needs to review personal data and financial information, and discuss a potential plan to meet their goals and objectives. The attorney needs to learn about their family and how the various members handle money. This is sensitive information, something not always easy to talk about. But an experienced estate planning attorney won't be shocked by any characters lurking in the family tree – everyone has them!
Both spouses meet a few times with the attorney to discuss goals, values, and -- maybe most importantly -- what they want to avoid. In the process, Sanjay and Ling discover that they have very specific wishes they want someone to carry out were something to happen. The attorney listens carefully and prepares the appropriate strategy and documents.
Few estate planning lawyers have the knowledge and expertise to avoid the pitfalls in these situations
Sanjay and Ling are made up people. But if your circumstances are anything like their, I do recommend that you retain an attorney familiar with helping non citizens and non residents.
Also, here are guides I've published that might help you:
All the best,
Everyone with a high net worth should put together an estate plan. Some may be straightforward, while others will be complex. Here is one example (there are others in my newest guide) of a person with relatively complex financial circumstances, who would benefit from hiring an experienced estate planning attorney.
Meet Barry, the Silicon Valley entrepreneur
Barry is an entrepreneur in his 50s. He is not a U.S. citizen, but he has a green card. He owns real estate here, plus stock in U.S. companies, and lots of expensive stuff in his home -- cars, antiques, etc. He also has assets in South America and Europe.
Barry wants a little bit of his estate to go to his children (who are already doing well on their own), most to go to his grandchildren, and nothing to go to his ex-wife.
A good estate planning attorney will know the applicable laws, both domestic and foreign, that apply to Barry’s situation. His estate plan can be structured so that his grandchildren don’t get control the money until they are old enough to handle it.
The planner will go through several years of tax returns to see how Barry is handling his finances now, what he paid for the properties and what they are worth today. In addition to minimizing estate taxes, the plan will minimize capital gains taxes and property taxes.
Few estate planning lawyers have the knowledge and expertise to avoid the pitfalls in these situations
There is a great deal that must be considered in international estate planning and there are no easy answers or simple solutions. That is why Barry avoided the cookie cutter approach to estate planning -- the one offered by using pre-printed forms. He did make an investment -- top shelf legal guidance is not cheap -- and got a handsome return.
Getting a plan tailored to your needs
Barry is a made up person. But if your circumstances are anything like his, I do recommend that you retain an attorney familiar with helping non citizens and non residents.
Guides I've published that might help you:
All the best,
When estates are valued in the millions of dollars, good planning takes more than filling in the blanks on a stack of one-size-fits-all forms. Get a copy of my new guide that tells the kind of training and experience a good estate-planning attorney needs to do it well. The guide even has a checklist that people can use to compare the services offered by a variety of law offices.
Obviously, I hope people choose me for their estate planning. But I want them to choose me for the right reasons, and I want them to understand those reasons. It actually makes my job easier and more rewarding -- because it leads to better client relationships.
With that in mind, I've put out a Guide to Choosing Your Bay Area Estate Planning Attorney. You can find it here on my website at www.calprobate.com/choosing.
It's hard enough for most people to think about estate planning in the first place. They may not know the best way to make sure their goals are met, and they certainly don't know all the legal work involved in making sure their wishes are carried out when they are no longer around to supervise. That's the whole point of hiring an estate planning attorney!
But I want to be the navigation system, not the driver. I want them to be comfortable with their decisions, rather than having me tell them what they should want. Each client is unique. It takes the collaboration of my expertise and their goals.
When I sit down with prospective clients, I want them to understand that when estates are valued in the millions of dollars, good planning takes more than filling in the blanks on a stack of one-size-fits-all forms.
So get the guide. It explains what kind of work goes into a solid estate plan, and the kind of training and experience a good estate-planning attorney needs to do it well. The guide even has a checklist to use when comparing attorneys.
Here's something else you'll find in the guide: My fees. A lot of attorneys get very shy when it comes to discussing money. I don't see the point. I can't offer to do the job for everyone for the same flat fee, but the guide gives a range of what to expect for the typical kinds of estate planning services I perform.
Take a look at my guide and see how much better you understand what to look for when hiring an estate planning attorney. And please come back and comment to let me know what you think!
All the best,
A test worth millions
Currently, U.S. citizens enjoy a $5 million exemption from both estate and gift taxes (at least in 2011 and 2012). But many non-citizens are limited to an estate and gift tax exemption of only $60,000. The key question is where the non-citizen considers home or “domicile” to be.
Determining your home country
If a non-citizen does not consider the U.S. to be his home country, he can only claim a $60,000 lifetime estate and gift tax exemption. To determine where a non-citizen’s home is located for estate and gift tax purposes, the IRS uses a “facts and circumstances” test. The test includes many factors, including review of:
- Your Visa status
- Locations and values of other residences (real property)
- Where your family members and close friends live
- Where your personal property is located - especially valuable items like fine art, currency, cash, stocks, and bank accounts
- The location of your business interests
- Where you are registered to vote
- Where you are licensed to drive
- Where your primary residence is
- Where you intend to be buried
Non-resident alien status
If a person is neither a citizen of the U.S. nor considered to be domiciled in the U.S. (a non-resident alien or “NRA”) for gift and estate tax purposes, then the only assets which would be subject to U.S. gift and estate taxes are those situated in the United States.
As an attorney experienced in international estate planning law, I can help you determine whether you are subject to U.S. estate and gift tax laws.
Call me at (650) 325-8276 or download my new guide, U.S. Gift Tax and Estate Tax Planning for Non-Residents and Non-Citizens >>
All the best,
To many, Bay Area real estate seems like a bargain right now. Prices are still some of the lowest in years, and foreign nationals, among others, are paying cash -- sometimes millions of dollars in cash -- for property in San Francisco area communities.
As I explain in a new guide, U.S. Gift Tax and Estate Tax Planning for Non-Residents and Non-Citizens, such investments are at risk if the buyer is a non-citizen or non-resident without a sound strategy to minimize gift taxes and/or estate taxes. The guide outlines key elements in an international estate plan, including:
- What is considered “home” for the purpose of estate planning?
- How the tax law treats citizens, non-citizens, and non-residents differently
- Treatment of minor children, including issues surrounding the choice and citizenship of a guardian
- One useful estate planning tool, the Qualified Domestic Trust
U.S. gift tax and estate tax laws are tough on non-citizens
The timing of international estate planning is key because federal estate and gift tax laws are tough on non-citizens -- even when non-citizens with ‘green cards’. In addition, many clients have assets both in the United States outside of the U.S. and not all countries recognize trusts and other tools that work within the United States.
The rules for a noncitizen and nonresident are even more complex if he or she dies owning 'U.S. situs' assets. The most common U.S. situs assets are real estate located in the U.S., stock options in a U.S. company, stock ownership in a U.S. company, and a U.S. company's corporate bonds.
Preventing asset erosion from fees and taxes
If you are a non-citizen or non-resident buying up U.S. assets, real estate agents, accountants and attorneys may each play an important role in asset protection. For example, accountants know a lot about keeping track and building up clients' money. On the other hand, estate planning isn’t their primary job. A real estate agent can help find killer deals on Bay Area houses, condos, and land -- but they won’t be an expert on tax law. And a title company can’t tell you the best way to pass your real estate assets to loved ones, either.
An attorney experienced in international estate planning law can help you can gain peace of mind that your loved ones will not face a snarl of tax issues down the road. At least, with this new guide as a start, families will know what kind of legal help they need, and the right questions to ask.
Download the guide >>
All the best,