Property located in the United States-including real estate, art, jewelry and stock-is generally taxable at death under estate tax law, and estate planning attorneys have as one of their core goals to reduce estate tax liability for their clients. They do this by crafting estate plans that avoid or minimize the amount of taxes owed. For non-citizens who wish to pass their wealth on to their children, though, this can be a more difficult task.
Non-citizens generally have an estate tax exemption of $60,000 at present, significantly less than the $5 million exemption given to U.S. citizens through the end of 2012. Because of this, multinational families often face more taxes when transferring wealth to children living in the United States.
In terms of gift taxes, non-citizens may leave an unlimited amount of money to U.S. taxpayers without gift tax liability, provided they don't give physical property that is in the United States. These types of gifts, though, may eventually end up triggering estate taxes for the recipients.
Because of the difficulties faced by foreigners, some have taken to hiding money in offshore accounts and not reporting it, but this strategy is failing as countries increase information sharing in an effort to decrease tax evasion. Multinational families are increasingly consulting estate and tax planners to help them reduce tax bills in ways that are legal.
There are a number of strategies non-citizens can make use of to minimize estate and gift taxes. Among the strategies used to minimize taxes of gifts of real estate is to place property in offshore company, and have family members purchase interests in the company. Gifts of the company interest would likely be considered intangible, and so would not be taxable.
The key is to plan ahead and to carefully consider the consequences of any action. It is important to work with an experienced estate planning attorney to ensure one's goals are achieved.
Source: Bloomberg, "Tax Hunt Pushes Global Rich to Offshore Trusts," Elizabeth Ody, March 5, 2012.