Tag Archives: avoiding inheritance tax

U.K.-U.S. Inheritance Tax Planning- Estate Tax Treaty Strategies

U.K.- U.S. Inheritance Tax Planning  starts with your family needs versus saving taxes.   For example,  if you want to preserve your wealth for both your children and great grandchildren, you want a trust that can last for one hundreds years or more.

Such a trust requires a corporate trustee (such as a bank) versus an individual.  The corporate trustee must be a licensed financial institution that you believe will stay in business for 100 years.

The terms of the trust are more complex when the beneficiaries include next generation or generations.  We have seen that children start to demonstrate the real personality and behavior when they become teenagers.  As we watch our children become young adults, we finally learn their long term characteristics.

Because our needs change, we need a trust that we can change.  However, the United Kingdom and the United States inheritance tax and estate tax laws have restrictions on the trust amendments.  The solution is found with the use of an “amendment committee” that satisfies both Inland Revenue and the Internal Revenue Service. 

With your needs and goals in mind, your tax planners will start to draft your trust agreement.  The favorable provisions of the tax treaty provide the framework for your trust. 

One of the biggest international tax planning mistakes, that I have seen in my 40 years of experience, is the client hiring one firm for both the United States and the United Kingdom.

The old saying “Jack of all trades, master of none” applies to international tax planning.

The Best Tax Treaty for Inheritance and Estate Planning is the U.K.-U.S. Tax Treaty

One of my favorite cross border U.K.-U.S. tax plans is found in the tax treaty.  This allows the ownership of a home in the U.S. to avoid the complexity of the “Foreign Investors Real Property Tax Act” (FIRPTA).  Here is what I like:

Ian and Elizabeth are U.K. citizens and domiciles. They own a home in California. Assuming that Ian dies first, his will can provide that the home is inherited by his Elizabeth.  Under the tax treaty,  the U.S. will not charge an estate tax.  Plus, the cost of income taxes is now the market value of the home.

If Elizabeth sells the home after the death of Ian, she will avoid U.S. and California income tax on the appreciation in the value of the home.  The UK-US tax treaty overrides FIRPTA.

The link to the treaty is below.  If you would like a tax planning study then please contact me at [email protected]

  1. UK-US Gift Tax Treaty and UK-US Inheritance Tax Treaty
  2. An article on U.S estate tax for the non-citizen

International Gift Tax Strategy and Planning

International gift tax strategy and planning can be a challenge for the international tax attorney and accountant.   The non-resident alien does not get the preferred tax law available to Americans. 

As a result, gifts to their family in the United States is often taxable.  The IRS can collect the tax from the individual that received the gift. 

For example, parents in Hong Kong make a bank wire transfer in the amount of $200,000 to their son.  The IRS can collect the gift tax from the son. 

In this blog, I review one items that seem to cause unexpected U.S. gift tax.  The  items is a gift of money (such as  a check or bank wire transfer or cash).

To get a complete understanding of the U.S. international gift tax and estate tax laws, I recommend by book (for $9.50) available at Amazon on this link.

International gift tax strategy and planning for a gift of Money

The treatment of a gift of money (not paper dollars but checks, wire transfers and other banking transfers) is very unclear.  So, unclear that the foreign individual should never make such a gift.  This blog does have a possible international  gift tax strategy and plan.  So, please keeping reading.

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International Tax Accountant in Los Angeles

The international tax accountant in Los Angeles, San Francisco and Orange County must be experts for both the Asian community and the European community.

  1. Most  international tax accountant in Los Angeles specialize in either European tax planning or Asian tax planning.  European tax planning involves:
    1. income tax treaties,
    2. estate tax treaties,
    3. gift tax treaties,
    4. social security tax treaties, and
    5. friendship, navigation and commerce treaties.   

Asian countries do not have similar tax treaties.  While China and the United States do have an income tax treaty, the treaty is limited.   The U.S.-Chinese tax treaty is limited compared to the European tax treaties.

Besides European tax treaties, the international tax accountant in Los Angeles must also know the basics of Canadian tax law and the Canada – U.S. tax treaty. This treaty is unique.   The tax treaty covers retirement plans, estate taxes and a special trust income tax law.

Many European tax treaties allow the European to avoid U.S. income taxes while living the in  United States as long as they do not have a U.S. Green Card.  Here is link on this amazing tax savings.

Both the Asian and the European are taxable on income earned by their corporations before they became a U.S. resident.  The income is taxable when the corporation pays a dividend or is dissolved.  

Income from a foreign investment fund is subject to a harsh tax treatment unless is special election is made.   This law is known as the “passive foreign investment company” (“PFIC”) tax law. 

International Tax Accountant in Los Angeles can help reduce or avoid European Inheritance Taxes.

One of the challenges for the international tax accountant in Los Angeles is helping the European manage their home country inheritance tax laws and avoid the U.S. estate tax laws.

Inheritance taxes are paid by the recipient of a gift or a bequest.  In the UK and the EU, the governments have an inheritance tax.  The tax is based upon the amount of the gift and bequest.    However, in the U.S., the estate of the deceased pays the tax based upon the value of the estate. Gift tax is paid by the donor (the person making the gift) and not by the donee (the person receiving the gift). 

If you would like to discuss your international tax problem or concerns, then email me at [email protected]

Tax Planning Tricks of Cross-Border Tax Accountants (CPAs)

Just how do cross-border tax accountants (usually a CPA or Chartered Accountant) use different nations tax laws to legally avoid taxes?

One term you will see on the internet is “hybrid” such as a hybrid company or a hybrid trust.

The USA is the biggest source of hybrid companies.   I am sure you have heard of them; they are known as limited liability company (LLC).    Only in America, the tax authorities (the IRS) treats the LLC as non-existing.  Yep, the single member LLC does not file a tax return.  It is completely invisible.

Meanwhile, Europe and even Mexico has complained to the U.S.  The Panama Papers disclosed that the Wymoing LLC is the most invisible tax haven company on the planet.   For example, if a French person owns a Wyoming LLC his government will never know.  Yet, this company can do worldwide cross-border business.  It can open U.S. and foreign bank accounts.

Hybrid Trusts are usually created in Nevada.  Cross-border accountants know that trusts only exist in form British colonies.  Yep, that includes America.   For reasons the baffle many, the U.S Department of the Treasury issued regulations that allow a Nevada trust to be taxed (in the U.S. and only the U.S) as a foreign trust.  Yep, it is as if the Nevada trust is in a  foreign (non-existing) country.

This allows the cross-border family to avoid inheritance tax in their home country and estate and income tax in the U.S.  Below is a fifteen minute audio of my radio show  (BlogTalk Radio Show; see just below my picture, above) on the Nevada Tax Haven Trust.

By the way, the corporate trustee fee is usually $2,500 per year.