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Multi-jurisdictional estate planning

Transfer Tax Situs Rules, Treaties and Foreign Tax Credits

The transfer tax implications for the expat’s (or non-U.S. person’s) property will depend upon the interplay of:

  • The nature or character of the assets;
  • The assets’ physical locations;
  • The applicability of an estate tax treaty between the U.S. and the country of residence, domicile and/or citizenship;
  • The availability of tax credits in the relevant jurisdictions where overlapping taxes are levied.

Understanding the Role of Situs in International Transfer Taxation

What is “Situs”?

Situs is Latin for “position” or “site.” In the law, it is a term  that refers to the location of the property for legal purposes.

While U.S. citizens and residents are subject to federal estate tax on worldwide assets, the non-resident alien’s estate is subject to federal estate tax only on U.S. situs assets, consequently “situs” has an important role to play in estate planning for many cross-border families.

Situs generally:  The general situs rule is that tangible assets physically located in the U.S. are subject to federal estate tax, but the situs rules for intangible property are somewhat involved and complicated. For instance, an asset can be non-U.S. situs for gift tax purposes but U.S. situs for estate tax purposes. Here are the general situs guidelines for non-resident aliens and their U.S. estate tax exposure:

  • Real Property – Land, structures, fixtures and renovations/improvements located in U.S. are U.S. situs.
  • Tangible Personal Property – property physically inside the U.S. is U.S. situs. This includes physical dollars or other currency.
  • Intangible Personal Property – U.S. situs will depend on the character of the investment:
  • Business Investment Funds – funds used in conjunction with a U.S. trade or business and held in bank or brokerage (including domestic branches of foreign banks), are U.S. situs.