With many tech companies, universities and businesses, North Carolina has become home to many resident aliens who contribute greatly to the state’s growth. Estate planning requires special knowledge of non-citizen tax rules.
More than $1 billion in annual foreign direct investment gives North Carolina’s private sector employment a huge boost, as reported in Trust Advisor’s recent article, “Foreign Spouses Need Strong Trust Planning.” That includes hundreds of thousands of workers, individuals who are not U.S. citizens but who establish residence here.
They’re known as “resident aliens” under U.S. tax law. There are also nonresident, non-U.S. citizens (“nonresident aliens”) who will invest in real and personal property situated in the state. This can include a wide variety of real and personal property, from vacation homes to ownership interests in a holding or operating company.
This uptick in foreign business and personal investment means more attention to the complex federal tax requirements applicable to non-U.S. citizens for income and transfer tax purposes. In addition, there are tax issues that impact non-U.S. citizens in connection with transfers of money or property during their lifetime or at death.
Generally, the U.S. imposes estate and gift tax on the worldwide assets of U.S. citizens and resident aliens. A major step in the estate planning process is determining your citizenship and, if married, that of your spouse. The estate and gift tax ramifications are, in large part, determined by the type of tax, domicile tests, marital status, property ownership and situs tests and treaty provisions.
For the U.S. estate and gift tax rules, “residence” and “domicile” are the critical thresholds that should be analyzed by your estate planning and tax attorney.
The test to determine “residence” for transfer tax purposes is subjective. An individual donor is a U.S. resident for U.S. gift tax purposes if he or she is “domiciled” in the U.S. at the time of the gift. For U.S. estate tax purposes, a deceased person is a U.S. resident decedent if he or she was “domiciled” in the U.S. at death. The Treasury defines “domicile” as living in a country without a definite present intention of leaving.
Proving that one has U.S. domicile takes more than simply having a “green card.” A careful determination needs to be made by examining a facts and circumstances analysis of the individual’s “intent to leave.” This is demonstrated in such elements as length of U.S. residence, voter registration, tax returns, visa status, driver’s license issuance and social and religious affiliations.
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