In many cultures it is customary to place bank accounts and other assets in the name of children . and international matters , where would you start ?
estateplanning
BY STEVEN GELLER CPA
International Topics
as taxpayers are becoming more global the complexity of their financial matters increases , and as practitioners , we ’ re being approached with new issues involving cross-border matters more than ever before .
The discussion that follows highlights common issues to look for and shares some planning ideas for those with cross-border interests primarily within the realm of trust , gift and estate . These issues are usually interwoven with tax reporting and compliance .
Here is a short ( non-exhaustive ) list of some of the issues that are commonly seen — and some that maybe aren ’ t as common :
• The “ accidental ” American ( U . S . citizen by birth has lived substantially all their life in another country )
• U . S . owners and beneficiaries of non-U . S . trusts
• Pre-immigration planning
• Passive Foreign Investment Companies ( PFIC )
• Non-resident alien decedents holding U . S . sited assets
• Non-U . S . spouses
• Gifts of bank accounts to U . S . children of non-U . S . Parents
• Ownership of non-U . S . enterprises and hidden reporting requirements The following are real-life scenarios we ’ ve seen in the last two years with our clients .
Situation No . 1 Harry is a U . S . person , living in California , and the beneficiary of a Hong Kong sited trust settled by his late grandfather , Phillip , a non- U . S . person . Phillip passed away in 2022 , the same year Harry became aware of the trust .
During 2022 , Harry also received an outright gift of £ 150,000 from his grandmother , Elizabeth .
Harry must obtain from the trustee a beneficiary statement and then file at minimum a Form 3520 with his return . Other forms may be due as well such as 8938 ,
possibly 1040 NR , etc . depending on the trust .
He must also report the receipt of the cash gift from his grandmother on Form 3520 .
Other questions should be asked , as well : What is the nature of the investments ? Could there be a PFIC element ? Could Harry be the indirect owner by attribution of controlled foreign corporations ? Even further , if the trust does not make regular distributions there is risk that throwback regime rules apply .
The issue of cash gifts is one that we see on a regular basis . In many cultures it is customary to place bank accounts and other assets in the name of children . If these children happen to be “ accidental ” Americans , these gifts often go unreported — and penalties for failure to report can be significant .
Situation No . 2 Henry and Harriet are a married couple . Henry is a U . S . person , living overseas , but spends a few months a year in the couple ’ s
Helping Client Through Cross-border Financial Issues
jointly owned Florida home . Harriet , not a U . S . person , is a tax resident of New Zealand , owns businesses in several other countries and has significant financial holdings outside the United States . Harriet is a non-resident in the U . S ., however the couple has decided to move to the U . S . in 2024 and Harriet plans to get a Permanent Resident Card , ultimately focused on citizenship . They have no will or trust . The couple is current with all U . S . tax filings and fully compliant .
After a quick analysis you realize that Harriet already has a taxable estate by U . S . standards and Henry is approaching at that level . While this is a very complex case involving domestic
In many cultures it is customary to place bank accounts and other assets in the name of children . and international matters , where would you start ?
Without any planning , her non- U . S . assets are likely to become part of her U . S . estate . As a first step prior to immigration , she might consider a “ drop-off ” style trust ( a non-U . S . sited trust established before she becomes a U . S . person ).
Whether in a trust or owned outright , the income from such assets would also become taxable to her after immigration . Harriet may also consider liquidating many of the securities and other assets before she becomes a U . S . person given the absence of capital gains tax in her current residency .
Both Henry and Harriet should consider the use of foreign and domestic trusts to provide generational protection . While doing her pre-immigration planning , Harriet may also want to consider adding an additional layer of tax and estate benefit by incorporating the use of a private placement life wrapper .
Situation No . 3 Charlotte ( affectionately referred to as Charlie www . calcpa . org AUGUST 2023 CALIFORNIA CPA 9