Presenting a live 90-minute webinar with interactive Q&A U.S.-Israeli Estate Tax Planning for Dual Citizens Reconciling U.S. and Israeli Law on Trust Taxation, Inheritance Laws, Situs Wills, and Wealth Transfers TUESDAY, SEPTEMBER 12, 2017 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Gidon Broide, CPA, Managing Partner, Broide and Co ., Jerusalem, Israel Debra T . Hirsch, Partner, Fox Rothschild , Morristown, N.J. and New York K. Eli Akhavan, Managing Partner, Akhavan Law Group , New York Felicia M. Seaton, Esq., Felicia Seaton Law , Jerusalem, Israel 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 . NOTE: If you are seeking CPE credit, you must listen via your computer — phone listening is no longer permitted.
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U.S. Estate Tax Regime vs. Israeli Law of Inheritance Osher Felicia International Law Office www.feliciaseaton.com
US Israel Probate issues vs. tax Probate required issues Very little Survivorship US trust owning Israeli property Israel taxes residents & property owners only No Israeli Inheritance/Estate tax Osher Felicia International Law Office www.feliciaseaton.com 6
Education Required US citizens residing in Israel unaware US tax applies. Educate regarding US Federal estate & gift taxation & “mixed marriages” IRS Minimum Required Distributions at age 70.5 Osher Felicia International Law Office www.feliciaseaton.com 7
US Estate Tax Solutions US ILIT is possible for Israeli residents Charitable giving is limited among Israeli residents Osher Felicia International Law Office www.feliciaseaton.com 8
Minor Children Minor children treated differently - US & Israel Israeli Wills holding estate for US minors US trusts for minor beneficiaries Osher Felicia International Law Office www.feliciaseaton.com 9
Probate Must plan for Israeli assets separately because must use a Will. Guardianship for minor children Israeli assets always require Israeli Probate, even if there was US probate. Income tax compliance – FBAR Executor/none Osher Felicia International Law Office www.feliciaseaton.com 10
Team Required US CPA Israeli CPA US Estate Planning Attorney Israeli Attorney Tax Issues Step up in basis US vs. Israel Osher Felicia International Law Office www.feliciaseaton.com 11
Current Tax Issues Possible US tax reform including repeal of US Federal estate tax. IRS & State Department cooperation since Jan. 1, 2017. Osher Felicia International Law Office www.feliciaseaton.com 12
Gift Tax Issues Buying child a home Child residing rent-free Unaware of gift tax and annual exclusion Osher Felicia International Law Office www.feliciaseaton.com 13
Miscellaneous Issues Arising Interesting whether foreign estates are subject to US Federal income taxation. Should US citizens apply for citizenship for their children Osher Felicia International Law Office www.feliciaseaton.com 14
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U.S.-Israel Tax Treaty Mechanism and Implementation in Israel Gidon Broide, CPA gidon@broide.com
Basic Treaty Mechanism • US Citizens (and some Green Card holders) living in Israel are generally obligated to file both Israeli and US tax returns. • They are subject to taxes on their world wide income. • Israeli residents may claim a foreign tax credit on their US return for taxes paid in Israel (certain limitations apply). • Israeli residents may claim a foreign tax credit in Israel for taxes paid in the US (certain limitations apply). • The end result should be a tax liability equal to the highest tax rate (Israel/US) for each type of income, and generally no double taxation of income. 49
Basic Treaty Mechanism • Tax rates applicable for each Country. • Who (Israel/US) taxes the income first – right to “first bite” . • Utilizing deductions. • Utilizing foreign tax credit. • Planning to avoid partial double taxation. 50
The Numbers – Comparing Tax Rates (2017) Income United States Israel Israel + Wealth (excludes Medicare Tax**** tax) Ordinary 39.6%** 47%** 50%** Income Dividends Regular 25% [30%*] 28% [33%*] 39.6%** Qualified 20% Interest 39.6%** 25% [30%*] 28% [33%*] 0% Municipal 15% [unlinked 18% [unlinked instruments] instruments] Bonds*** Capital Gains Short Term 25% [30%*] 28% [33%*] 39.6%** Long Term 20% ** Top marginal tax * Controlling **** 3% On annual rate Shareholder taxable income above ***Usually exempt NIS640,000 51
Israeli Taxes on US Income Income Type Israeli Taxes Comments US Pension Reduced rate Taxed at the same rate it would per Sec. 9(c) have been taxed in the US had it been the taxpayers only source of income Social Security Exempt Benefits US Rental income 30% - 47% 0% - 47% for taxpayers aged 60 or older 52
The Right to First Bite (Article 26(2) of Treaty) Real Estate Rental Income – Location of the property Dividends, Interest, Royalties – Where earned Capital Gains – Country of residence Capital Gains from sale of real estate – Location of the property Business Income – Country of residence unless work performed in the other country in which the taxpayer has a permanent establishment or even where no permanent establishment. Salary/Employment income – Where earned, unless the taxpayer spends 183 days or more in the other country during the tax year (Section 16) 53
Deductions • Israel will generally allow actual expenses and will not cap them. • The US standard deduction can’t be used as a deduction for Israeli tax purposes. • When using the standard deduction in the US, ask your professional to provide a Schedule A of itemized deductions (may be used on your Israeli return). • Charitable contributions are used as tax credit (35%) and not as deductions. • Some US deductions are not allowed – e.g. medical, home mortgage interest. 54
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