Multi-Jurisdictional Estate & Asset Protection Planning

The process of planning for resident aliens and U.S. citizens with assets in multiple jurisdictions is exceedingly complex and requires particular attention to detail. The United States has entered into tax treaties with numerous countries and consideration must be given to the laws of each jurisdiction during the design and implementation of a retirement, estate or asset protection plan. For example, for GST, gift & estate tax purposes, a taxpayer "should" have only one domicile. However, unless proper attention is given to this issue, it is conceivable for an individual to have a U.S. domicile even though resident abroad, or a foreign domicile even though resident in the U.S.. A higher level, or even double taxation of worldwide assets could result if domicile were to be claimed by both jurisdictions. Planning however, does not always prevent any country where an individual has assets from exerting control or demanding estate or inheritance taxes. In the U.S., relief is generally given for any taxes paid overseas through a system of tax credits provided for in treaties executed between the United States and other countries.

The choice of law for the disposition of foreign situs assets must be thoroughly researched for the following reasons; In some countries real property is governed by situs law and personal property by the law of domicile. Some countries will recognize foreign wills and entities such as trusts if drafted to comply with the statutes of country of domicile. Civil law countries such as Germany, Austria and Switzerland do not recognize trusts within the meaning of the law of equity, but may (or may not) recognize foreign trusts of non resident aliens or foreign domiciliaries. Some countries will apply the law of the decedent's domicile with respect to wills and estates, while others will apply the law of the country of Nationality.

The choice of law is especially important for clients who have been married more than once and have children from previous marriages. Discussions should be held with foreign counsel on the issues of confidentiality, forced heirship and restrictions on testamentary freedom, defeat of creditor claims and the potential benefits and drawbacks of separate domestic and foreign wills or other entities. Drafting of multiple wills and or trusts if found desirable, will need to be carefully coordinated in order to avoid unintentional blanket revocation, or contradictory clauses which could cause unnecessary delays during Probate. Research of foreign gift and inheritance tax law should be performed and alternative dispositions such as U.S. situs trusts with restrictions on distributions (e.g. Distributions of principle and interest only available to the beneficiary outside their country of domicile) should be created where a danger of confiscation or higher taxation of intended gifts and bequests to foreign beneficiaries is perceived.

As previously mentioned, it is important to establish the individual's country of "domicile" when planning the estate. Remember, domicile establishes to whom the estate owes money at the date of death on their worldwide assets. The treaties executed between the United States and other countries normally address what constitutes "domicile" for purposes of gift, estate or inheritance taxes.

Let's take the United Kingdom as an example. Here are some questions to be considered when trying to establish whether a United Kingdom passport holder is "domiciled" in the United States for Federal Gift and Estate tax purposes;

• Does the individual own real property in the U.K. or maintain a "family home" there.
• Has the individual has been a resident in the United States for income tax purposes since 1970. The treaty deems them as domiciled in the U.S. if;

  a. they resided for a period of three years preceding and were treated as domiciled for the purposes of any U.S. taxes which are covered by the U.S. - U.K. treaty.
  b. They were resident in the U.S. for income tax purposes in at least seven of the last ten years.

• Is the individual's "center of vital interests" the United States.
• Is the individual's permanent family home located in the United States.
• Is the individual's business headquartered in the United States
• Are the individual's children domiciled in the U.S. and / or U.S. citizens.
• Are the individual's advisors all located in California. These include their CPA, family attorney, financial planner, insurance agent, stockbroker and private banker.
• Is the individual a long time member and contributor to a local church located in the United States.
• Does the individual spend all of their time in the United States.
• Has the individual regularly filed income and gift tax returns in the United States since 1970.
• Does the individual use State issued I.D., for example (Driver's licenses) and translations issued by the American Automobile Association when driving abroad and possess credit cards issued by U.S. banks for paying miscellaneous bills.
• Does the individual refer to the U.S. as "home" on all important documents related to wills and estate planning.

Once U.S. domicile has been established, it is important to remember that special rules regarding the taxation of gifts and estates apply to non citizen resident aliens. Generally, estate taxes are due and payable at the death of the first spouse. U.S. citizens with an estate tax problem can normally delay the inevitable by creating a trust that preserves the exemption and also contains Q Tip provisions to shelter the estate from taxes until the death of the surviving spouse. Special rules are applicable to non citizen resident aliens however and unless properly planned, the estate may be liable for estate taxes at the first death.

In France, for example, accepting an inheritance without limitation means what it says and the deceased person's creditors can attack not just the estate you inherit, but where insufficient funds exist within the estate, can go after all your personal assets without limitation and without a statute of limitations. Furthermore, in the case of real property it is irrelevant whether you are an American citizen living in America. French law will apply and there is a standing treaty of reciprocal recognition for civil judgements between the U.S. and many countries such as France.

In conclusion, it may be more advantageous for some families, particularly families who have entered the U.S. on an E2 investor visa with no intention of becoming a citizen, to remain domiciled elswhere and never seek to attain citizenship. The choices are many and there is no panacea.

If you live in California, please call 1- 800 - 444 - 2237 to arrange for a free initial consultation in the comfort of your home or office. If you live outside this area, please contact your local FPA Chapter which should be listed in your local yellow pages, or send an E mail request for a Certified Financial Planner licensee in your area to the Head office of the Financial Planning Association in Denver, Colorado. It is also imperative that you take the time to read my Disclaimer in its entirety before contacting me on any matter.

Nigel B. Taylor, CFP¨ is a Registered Representative of and offers securities products & services through Royal Alliance Associates, Inc. Member FINRA/SIPC, a registered Broker-Dealer. In this regard, this communication is strictly intended for individuals residing in the states of California and Nevada. No offers may be made or accepted from any resident outside the specific state(s) referenced. Separately, Taylor & Associates is a CA Registered Investment Adviser

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