New York is an international city in every sense of the term. Every year, people from every corner of the world come to New York to work and live. While some return to their home countries in short order, others stay for longer periods of time while others decide to make this their permanent home.
Once an international citizen decides to live here on a long-term basis or if they purchase significant assets in the United States, it becomes important to determine how their property would pass if they die. In order to determine this, it is important to first understand what their legal status is in the United States.
There are three classifications that international citizens are grouped in for estate planning purposes. A non-US citizen who considers the United States their permanent residence is considered a resident alien. On the other hand, if the non-citizen is here temporarily or maintains a permanent residence outside the Unite Status, they are considered non-resident aliens. A final classification to consider is persons who hold one or more additional citizenships beyond US citizens. For each of these classifications, unique issues arise as it relates to estate planning, namely:
Property is primarily administered by the jurisdiction where the decedent was domiciled. For resident aliens, this means that their estates would be administered where they lived when they passed away. The main exception to this rule is for real and personal property, which must be administered in the jurisdiction where it is located. For non-resident aliens, as well as other individuals owning property outside of their domicile, the estate administration process becomes complicated by the involvement of multiple jurisdictions and the need for additional proceedings known as ancillary estate administration. For this reason, persons who own property in multiple jurisdictions and non-resident aliens often utilize trusts and entities like limited partnerships and LLCS to avoid ancillary probate.
The status as a resident alien versus a non-resident alien can have significant estate tax implications. Resident aliens retain the current $5.25 million federal estate tax exemption while non-resident aliens can only exempt $60,000 from estate taxes. While the types of property that are included in a non-resident alien’s estate are limited, owners of significant real and personal property may be subject to a significant tax bill if they do not plan properly.
For both resident and non-resident aliens, the standard marital deduction is limited. In order to qualify for this deduction, property passing to any non-US citizen must pass into a special type of marital trust called a qualified domestic trust (“QDOT”). The beneficiary of a QDOT receives income free of estate tax, but any principal that is distributed will potentially be taxed. In addition, a QDOT must have a US citizen as trustee at all times.
Individuals with multiple citizenships must also be aware of how each of the countries in which they claim citizenship tax assets at death. Many countries have estate tax treaties with the United States to prevent individuals from being taxed by multiple jurisdictions. For countries without estate tax treaties, it is important to understand which assets and which individuals are subject to their tax system.
Selecting a guardian to serve if both parents die is never an easy process. For non-citizens, the process becomes more complicated by the potential lack of suitable options domestically. The question becomes even more difficult if the child is an US citizen.
To ensure that their children are cared for as they choose, non-citizens must be explicit in terms of where they wish for their children to live and whom they wish to be their guardian. If they wish for their children to leave the US, they may wish to speak with an immigration attorney to ensure their citizenship is preserved. In addition, they should consider a ‘temporary’ or transitory guardian who is a US resident or citizen to assist with the appointment process.
The opportunities for international citizens in New York and in the United States will continue to attract the world’s best and brightest. Proper estate planning, with focus on both local and foreign issues, ensures that their stays here will not be compromised by their unique issues.
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