Presenting a live 90-minute webinar with interactive Q&A Probate Strategies When Non-Resident/Non-Citizen Decedents Own U.S. Assets: Legal, Tax and Practical Issues TUESDAY, JUNE 30, 2015 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Dean C. Berry, Partner, Cadwalader Wickersham & Taft , New York Jinsoo J. Ro, Norton Rose Fulbright , New York The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Topics • Probate and Nonprobate Procedures for Non-US Decedents • US Federal Estate Taxation of US Situs Assets • US Federal Estate Tax Collection Procedures Cadwalader, Wickersham & Taft LLP 5
SECTION 1 PROBATE AND NONPROBATE PROCEDURES FOR NON-US DECEDENTS Cadwalader, Wickersham & Taft LLP 6
Example #1 • Mr. X died in 2015 as a Dutch citizen and domiciliary • Surviving heirs are a wife and two adult children, all Dutch and non-US • Dutch Will leaves entire estate to wife and appoints her executor • At death Mr. X owned a New York brokerage account with a $1 million US stock portfolio Cadwalader, Wickersham & Taft LLP 7
Alternative #1 Ancillary Probate of Dutch Will in New York • Requirement of original probate in Netherlands ( § 1602 of NY Surrogate’s Court Procedure Act (SCPA) ) • Application made by Dutch executor or other person charged with administering estate ( SCPA § 1604 ) • Need for NY resident as designated or co-ancillary executor ( SCPA §§ 707(1)(c) and 1608(4) ) • Need for authentication of Dutch legal documents ( SCPA § 1614 ) • After payment of claims, balance of NY probate estate is payable to Dutch executor to be dealt with according to Dutch inheritance law ( SCPA § 1610 ) Cadwalader, Wickersham & Taft LLP 8
Alternative #2 Original Probate of Dutch Will in New York • Possible ( SCPA § 1605 ) but rare • NY allows original probate in multiple jurisdictions in limited circumstances ( SCPA § 1605(2) ) Cadwalader, Wickersham & Taft LLP 9
Alternative #3 Original Probate of American Will • Mr. X executes a NY Will for US assets and a Dutch Will for all other assets • NY courts have discretion to accept a nonresident’s Will for original probate where there are probate assets in NY and will usually do so ( SCPA § 1605(1) ) • Application made by executor named in US Will • If designated executor is a nondomiciliary alien of NY, will need a NY resident as co-executor ( SCPA § 707(1)(c) ) Cadwalader, Wickersham & Taft LLP 10
Alternative #3 Original Probate of American Will (cont’d) • Use of American Will raises choice of law issues regarding, among other issues, the applicable law governing testamentary dispositions • In general, the disposition of: – Real property is determined by law of land’s situs ( § 3-5.1(b)(1) of the NY Estates, Powers and Trusts Law (EPTL) ) – Personal property is generally determined by law of decedent’s domicile at death ( EPTL § 3-5.1(b)(2)) • However , if Mr. X’s American Will provides that NY law shall apply to the disposition of his estate, then NY courts will apply NY law to assets situated in New York ( EPTL § 3-5.1(h) ) Cadwalader, Wickersham & Taft LLP 11
Matter of Renard , 56 N.Y.2d 973 (1982) • French citizen and resident, who had previously been a NY resident, executed a Will in Paris leaving New York assets to a friend and charity, and requesting that the Will be probated in NY and that NY law apply • Decedent’s son, French/US citizen and California resident, objected and claimed 50% of NY estate as his entitlement under French law of forced heirship • NYS Court of Appeals upheld decisions of lower courts that rejected son’s claim on grounds that EPTL § 3-5.1(h) allows a nonresident decedent to elect NY law to govern the disposition of NY assets Cadwalader, Wickersham & Taft LLP 12
Limits on Application of New York Law to Nonresident Decedents • Surviving spouse’s right of election ( see , e.g. , Matter of Clark , 21 N.Y.2d 478 (1978)) • Surviving spouse’s interest in community property Cadwalader, Wickersham & Taft LLP 13
Alternatives to Probate • Nonprobate transfers – Gifts – Joint ownership – Beneficiary designations – Pay on death accounts • Corporation or LLC for US assets – LLC membership is an intangible personal property interest; disposition is governed by law of decedent’s domicile at death • Revocable trust for US assets – New York allows a nonresident settlor to elect that a trust be governed by New York law – NY law will then apply to (i) real and personal property situated in NY and (ii) personal property wherever located if trust has a NY trustee ( EPTL § 7-1.10 ) Cadwalader, Wickersham & Taft LLP 14
Marital Property Issues • Who is a surviving “spouse?” • Community property issues Cadwalader, Wickersham & Taft LLP 15
SECTION 2 US FEDERAL ESTATE TAXATION OF US SITUS ASSETS Cadwalader, Wickersham & Taft LLP 16
Basic Rules Applicable to US and Non-US Persons • The application of US transfer tax rules generally depends on whether the transferor is a US citizen or US resident on the one hand (“US Persons”), or a non -US citizen who is also a non- US resident on the other hand (“Non -US Persons”) Cadwalader, Wickersham & Taft LLP 17
US Transfer Tax Definition of Resident • A resident for transfer tax purposes is one who is domiciled in the United States – Domicile is acquired by living in a country, even for a brief period of time, with no definite present intention of moving at a later time (Treas. Reg. § 20.0-1(b)(1) (estate tax) and § 25.2501-1(b) (gift tax)) • A resident individual for all other purposes is determined under IRC § 7701(b) – Substantial Presence Test – Green Card Test – First Year Election Cadwalader, Wickersham & Taft LLP 18
US Transfer Tax Rules Applicable to US Persons • US Persons are generally subject to US Federal estate, gift and GST tax on taxable transfers of property, wherever located, at a 40% rate • US Persons are generally entitled to an exemption from each transfer tax. The gift and estate tax exemptions are unified. In 2015, the maximum exemption for each transferor is $5,430,000 for Federal estate, gift and GST tax purposes • All US Persons can: – make annual exclusion gifts ($14,000 in 2015) – elect to use portability and – split gifts Cadwalader, Wickersham & Taft LLP 19
US Transfer Tax Rules Applicable to Non-US Persons Estate Tax • Non-US Persons are subject to US estate tax on assets situated in the US • Non-US Persons have a $13,000 credit (which equates to a $60,000 exemption) from US estate tax; however US estate tax treaties may provide a greater exemption Gift Tax • Non-US Persons are subject to US gift tax on gifts of real and tangible property situated in the United States – Unless the donor expatriated, intangible property given by a non-US resident is not subject to the gift tax – The IRS takes the position that Treasury bills located in the United States are tangible assets ( PLR 8138103 ) – Annual exclusion for gifts ($14,000 in 2015) is allowed, but gift-splitting is not allowed Cadwalader, Wickersham & Taft LLP 20
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