If you’re not a U.S. citizen or resident, you might think you have no U.S. tax obligations.\u00a0 But if you hold shares in any U.S. corporations, your heirs may face a huge tax bill when you die.<\/p>\n
The culprit is an obscure provision in the Tax Code.\u00a0 Section 2104 reads, in part:<\/p>\n
\u201cShares of stock owned and held by a nonresident not a citizen of the United States shall be deemed property within the United States only if issued by a domestic corporation.\u201d<\/p>\n
Section 2104 is a section of the Tax Code dealing with estate tax.\u00a0 And this sentence means that even if you have no connection whatsoever to the United States, the IRS can still subject your holdings of U.S. stocks to estate tax.\u00a0 Similar rules apply to real estate holdings.<\/p>\n
The rules exempt the first US$60,000 of U.S.-based real estate or securities from tax.\u00a0 But if your worldwide estate exceeds US$3.5 million at your death, then it must pay tax on the U.S.-based portion.<\/p>\n
That’s what happened to one unfortunate couple living in Belgium.\u00a0 The husband accumulated 250,000 shares of stock in banking giant Citicorp.\u00a0 At the time he passed away in 2002, the stock was worth nearly US$12 million.<\/p>\n
If the couple had been U.S. citizens, the shares could have automatically conveyed to the surviving spouse free of gift or estate tax.\u00a0 That’s a consequence of a concept called the “unlimited marital deduction.” However, if the surviving spouse isn’t a U.S. citizen, no deduction is available.<\/p>\n
The result in this case is that the husband’s estate now owes over US$4 million in estate taxes and penalties.\u00a0 And because the value of Citicorp shares fell more than 90% between 2002 and 2009, the shares are worth only about US$1 million today.\u00a0\u00a0 In other words, the estate must shell out four times the value of the shares in taxes and penalties.<\/p>\n
This is an outrageous result, but it’s the law.\u00a0 Fortunately, there’s an easy solution.\u00a0 If you aren’t a citizen or resident of the United States, and want to own U.S. shares, don’t hold them in your own name.\u00a0 Instead, take possession of the shares through an entity such as a trust.\u00a0 This simple step would have saved the heirs of the deceased Belgian investor over US$4 million in unnecessary taxes.<\/p>\n
If you’re a non-resident investor, be sure to obtain advice from a tax professional before investing in U.S. shares\u2014or any U.S. property.\u00a0 Don’t make the same mistake as this unfortunate Belgian family<\/p>\n","protected":false},"excerpt":{"rendered":"
If you aren’t a citizen or resident of the United States, and want to own U.S. shares, don’t hold them in your own name.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_daextam_enable_autolinks":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[11],"tags":[14,37,29],"class_list":["post-200","post","type-post","status-publish","format-standard","hentry","category-general-estate-planning-and-probate","tag-2009-estate-tax","tag-2009-state-death-tax","tag-estate-planning-errors"],"_links":{"self":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts\/200","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/comments?post=200"}],"version-history":[{"count":0,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts\/200\/revisions"}],"wp:attachment":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/media?parent=200"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/categories?post=200"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/tags?post=200"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}