posted on January 31st 2014 in Austin CFP Team Posts & Your Financial Advisor with 0 Comments /

As a full-service wealth management advisory firm, WorthPointe advisors weigh in on issues like the ones noted in this article during the planning process. Those who have these one-off challenges would be better served to speak with a local tax lawyer to gain the required advice.


In addition to taxing income, the U.S. imposes a tax on the transfer of assets from one person to another and a lack of planning can lead to financial disaster. The rules are complex and differ depending upon whether the gift is made during the gifter’s lifetime or at death. The tax is imposed on citizens and non-citizens alike.

Planning involves understanding the taxes, what transfers are subject to tax and upon what types of property they are imposed.

Type of Property

Which taxes apply to a transfer of property depend upon whether it is classified as intangible property or property not intangible property (referred to as tangible property in this piece) and whether it’s a gift tax or estate tax.

Gift Tax

Under Section 2501(a)(1), a tax is imposed on the transfer of property by gift by an individual, whether such person is a resident or non-resident. An exception to this rule is that a non-resident can transfer intangible property without a gift tax.

We must first understand what is considered tangible property. Tangible property includes real property within the U.S.; tangible personal property such as artwork, jewelry, furniture, and collectibles situated within the U.S.; and U.S. or foreign currency or cash within the U.S.

Intangible property is property not included above regardless of where the property is located. This means stock in U.S. corporations, interests in partnerships or LLCs, mutual funds, bank and brokerage accounts, fiduciary accounts, and life insurance policies, even if located in the U.S., are considered intangible property for purposes of gift tax. They are therefore not subject to tax on lifetime gift transfers.

Estate Tax

The estate tax is imposed upon all assets of U.S. citizens and non-citizen residents regardless of the type or location of the property.

A non-citizen/non-resident must pay an estate tax on all U.S. situs assets, including tangible property such as cash located in the U.S.; shares of U.S. corporations; the value of an annuity or life insurance policy issued by a U.S. insurance company on the life of another; and other intangible property if the property is used in conjunction with U.S. trade or a U.S.-based business, including the bank or brokerage accounts of such business or trade if on deposit (even with a branch of a foreign bank) in the U.S.


For gift tax purposes, an individual is a resident if that person is domiciled in the U.S. at the time of the gift. For estate tax purposes, a person is a resident decedent if the person is domiciled in the U.S. at the time of his or her death.

As defined by the U.S. Treasury Regulations, “A person acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of later removing therefrom. Residence without the requisite intention to remain indefinitely will not suffice to constitute domicile, nor will intention to change domicile effect such a change unless accompanied by actual removal.”

In practice, domicile is a factual issue based on various factors, none of which are determinative. These factors include length of time spent in the U.S. and abroad; size, cost and nature of the decedent’s houses or other residences (whether owned or rented); location of the decedent’s family and close friends; visa status; location of decedent’s business interests and voting records; and declaration of residence in one’s wills, trusts, deeds, etc.

Accordingly, an individual who maintains a residence in the U.S. might not be domiciled there for transfer tax purposes.

Tax Treaties

Many countries have agreed with other countries to mitigate the effects of double taxation. Tax treaties may cover income taxes, inheritance taxes, value added taxes or other taxes. The provisions vary widely and should be consulted often.


Almost without fail in the U.S., where there is a tax there is an exemption. The same is true of the gift and estate tax. Absent a tax treaty to the contrary, the exemptions are summarized below.

Exemptions for U.S. Citizens and Non-Citizens Who are Domiciliaries of the U.S.

U.S. citizens and domiciliaries have the following exemptions or exceptions to transfer taxes:

  1. A lifetime exemption of $5,340,000 (adjusted annually for inflation)
  2. An annual exemption of $14,000 to any person
  3. An annual exemption of $145,000 to a spouse who is not a U.S. citizen
  4. An unlimited amount that may be transferred to a spouse who is also a U.S. citizen during life or at death

Non U.S. Citizen/Non-Domiciliary of the U.S.

Non-citizens who live in the U.S., but who are not considered domiciliaries, are subject to U.S. estate and gift tax only on property situated in the U.S. The following summarizes the exceptions and exemptions:

  1. Exempt the first $60,000 of U.S. situs assets at death
  2. Gift an unlimited amount of non-U.S. assets, including stock in U.S. companies
  3. Gift up to $14,000 per person annually of U.S. assets (gift splitting not permitted)
  4. Gift up to $145,000 to a non-resident spouse of U.S. assets
  5. Transfer during life or at death an unlimited amount to a spouse who is a U.S. citizen.


The type and timing of transfers significantly affects the amount of tax imposed on transfers.

Non-U.S. citizens/non-residents and those married to non-U.S. citizens, whether residing in or outside of the U.S., should seek education to minimize an exposure to transfer tax both now and upon their death. Consulting with an advisor who works with international clients can help mitigate these and other issues.

about the author: Christopher P. Van Slyke CFP®

Christopher Van Slyke CFPChristopher P. Van Slyke CFP® is a past member of the board of directors of The Financial Planning Association (FPA) of Austin, San Diego and Los Angeles, as well as the western region board of directors for the National Association of Personal Financial Advisors. Christopher, a Certified Financial Planner Professional, has been quoted or published in The Wall Street Journal, San Diego Union Tribune, Financial Planning, Smart Money, Financial Advisor, Boomer Market Advisor, MSN Money. Learn More and Contact Christopher for Speaking / Writing Engagements

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