February 13, 2020
Does the irs want you?
US persons are subject to US estate tax when they die, regardless of where they were living when they died. Executors for US persons and their advisers are required to work out whether an estate tax return needs to be filed with the US Internal Revenue Service (IRS).
First the Good News:
Many estates will not need to file an estate tax return, due to there being a high asset threshold for US persons before an estate tax return needs to be filed with the IRS. The threshold is called a unified credit, which changes each year, some examples are:
2020 – unified credit $11.58 million
2019 – unified credit $11.4 million
2017 – unified credit $5.49 million
Filing of an estate tax return for US persons is required for estates with gross assets and prior taxable gifts exceeding the unified credit in the year of death.
Where the estate assets exceed the unified credit amount the tax rate is 40%.
Estates with US estate tax obligations:
The estate of a deceased US citizen and US resident is taxed in the US on worldwide assets.
A deceased is a US citizen where:
- Born in the US
- Born in another country with two US citizens as parents
- Born in another country with one US citizen as a parent and the parent lived in the US for 2 or 5 years after the parent’s 14th birthday
A deceased is a US resident where (note – this is a different test to income tax residency):
- Domiciled in the US for estate tax purposes, this is determined by a facts and circumstances test that takes into consideration some of these factors: statement of intent, length of residence in the US, green card status, ties to former country, country of citizenship, location of business, voting, church, drivers licence.
Where a deceased owned assets valued more than $60,000 in the US but the deceased was not a US citizen or resident, the estate must file an estate tax form.
If you are not sure whether the deceased’s connection with the US means the estate has tax reporting obligations you should seek advice.
How can McInnes Wilson Lawyers help?
Whether you are a US person undertaking your estate planning or an executor administering an estate with US connections, we can assist you through the process. We are not experts in US tax and cannot advise you on US tax. However, we can assist you where Australian tax relates to US tax and we can assist you with getting the right advice.
If you require further information, please contact: