Pre-immigration estate planning

Estate planning is essential for foreign nationals who are or will become subject to estate or gift taxation by the United States.

The nature and extent of pre-immigration estate planning will depend upon whether the foreign national will reside in the United States for only a temporary period or whether he or she intends to reside in the United States indefinitely or permanently.

If the foreign national  will become a US income tax resident for only a few years (for example,  a work assignment under a non-immigrant visa category),  it is unlikely that the foreign national will be considered  domiciled in the United States for US estate and gift tax purposes.  For a non-domiciliary, the US estate tax base is limited to US-situs assets, which includes principally US real estate, tangible personal property located in the United States, shares in US corporations, and certain categories of debts having US obligors.  In light of the limited scope of the US estate tax for non-domiciliaries,  US estate tax exposures can usually be managed through a combination of:  (i) life insurance coverage (even if not in trust since life insurance proceeds are excluded from the gross estate of a non-domiciliary);  (ii) lifetime gifts of intangible property (such as US stocks and bonds) either to an individual or in an estate tax-protected trust since the US gift tax does not apply to lifetime gifts of US intangible property made by non-domiciliaries;  and (iii) the use of foreign entities to  own US-situs assets, thus converting US-situs assets to non-taxable foreign-situs assets, although such an approach is not without its own income tax and estate tax risks.

If a foreign national intends to reside in the United States indefinitely or permanently, he or she will likely be considered to be domiciled within the United States for US gift and estate tax purposes.   Pre-immigration estate tax planning in this context means pre-domiciliary estate planning.  Because of the limited scope of the US gift tax in the case of non-domiciliaries, it is possible to make irrevocable tax-free gifts to individuals or in trust prior to be becoming a domiciliary.  Furthermore, the generation skipping transfer tax does not apply to gifts made by non-domiciliaries if the gift itself was not subject to US gift tax. Treas.Reg. section 26.2663-2.  This limited application of the generation skipping transfer tax to gifts by non-domiciliaries permits the funding of a properly structured multi-generational trust prior to becoming a US domiciliary without the imposition of US transfer taxes.

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