# Estate Planning



## thethebaxter (Jan 17, 2012)

I would appreciate hearing from someone who can shed some lights on the following points regarding estate tax.

1.	I understand that estate bequeathed by an expat USC to a non-USC spouse is taxable on all assets owned world-wide without exemption (note that transfer to a USC spouse of estate under $5.1M in 2012 is exempted). 

According to IRS, unified credit for 2012 is $1.2 (which will be reduced significantly in 2013 when the $5M lifetime gift exemption is reverted back to $1M). May be I’m just paranoid since it is so straightforward, but I just have to ask this question to get some assurance to validate my understanding. My question is: assuming that I have never given a taxable gift, does that mean at the time of my demise, my estate would be able to use the unified credit (calculated based on the life time gift exemption at that time) to off set all of some of the estate tax payable. 

If that’s true, then I have been worried sick for nothing these last few days as the value of one’s estate would have to be in the few $M range (fortunately or unfortunately depending on how you look at it, mine’s not even remotely close to this range) in order for the estate tax to come in more than my unused unified credit. Any help would be appreciated.


2. Through some old posts, I get an understand that real estate (land and buildings) owned by a deceased expat USC can not be taxed by IRS if the property is located outside of the US. I looked through the IRS web site, there is no mention that in determining the gross value of an estate, real estate held outside of the US is not to be included from the calculation. Can some comment on this, please? 

Thanks again.


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## Bevdeforges (Nov 16, 2007)

As far as I know, the issue of taxing real estate holdings outside the US isn't really a matter of "they can't be taxed" as much as they are subject to special treatment so they won't be double taxed. This would be a matter for the estate tax treaty between the US and the country in which the property is located. (Most countries these days do subject real property located in the country to estate taxes on the death of the owner, no matter where he or she is tax resident.)

Also, as far as I can tell, the whole matter of what the tax rates (and unified credit) will be for 2013 is still completely up in the air - and with the way things are going in Congress, I suspect they may stay this way until the elections in November.

This is the IRS page on the estate tax: Estate Tax and it points you to several publications and sections with further information.
Cheers,
Bev


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## thethebaxter (Jan 17, 2012)

Bevdeforges said:


> As far as I know, the issue of taxing real estate holdings outside the US isn't really a matter of "they can't be taxed" as much as they are subject to special treatment so they won't be double taxed. This would be a matter for the estate tax treaty between the US and the country in which the property is located. (Most countries these days do subject real property located in the country to estate taxes on the death of the owner, no matter where he or she is tax resident.)
> 
> Also, as far as I can tell, the whole matter of what the tax rates (and unified credit) will be for 2013 is still completely up in the air - and with the way things are going in Congress, I suspect they may stay this way until the elections in November.
> 
> ...






Thanks Bev.

After reading through Publication 950 just now (Introduction to Estate and Gift Taxes), I realized that unified credits for 2012 is $1.772M, not the $1.2 M as mentioned in my original post. If the $5M lift time gift exemption does not go beyond 2012, I estimate that unified credits for some one who has never made taxable gift before would be approximately $330,000 (same amount as for 2202 through 2010). This probably represent estate tax payable on an estate in area of $800K - $900K. This is not very much when you take into consideration insurance payout, value of matrimony home, etc… 

May be what I’ll do is make use of the $139K in annual exclusion gift (for non USC spouse) and transfer assets to my wife. That way, my spousal gift won’t eat into my unified credits and yet reduce my taxable estate as much as possible. 

Thoughts and comments are welcome. Thanks


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## thethebaxter (Jan 17, 2012)

Oh, btw, Does any one know in determining value of an estate of a deceased USC and if the decedent owns a home with a non-USC spouse, what value of the house is to be included in the gross estate value. Is it the decedent’s 50% share of the FMV or the entire 100%. This matters tremendously to the surviving non-USC spouse as there is no basic exemption for transfer of estate to non-USC spouse (whereas transfer to USC to USC transfer is free of tax on the first $M (not sure how many millions). 

Thanks.


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## USCNOMORE (Apr 14, 2012)

*US Citizens living & dying in Canada*

I will preface this question with an explanation that this is all very new to me and I have a thousand questions ... My parents are in their 80's, both US citizens and have lived in Canada as permanent residents for 41 years. They have asked that I assist them with estate planning (this should have been done 10-20 years ago). Can someone please tell me if they will be taxed by the US government on their estate when the last of them passes away. They have money is savings account, RIF's ($260 000)and they own their home, in Canada, mortgage free ($400 000)--total value for the two of them I would estimate at $650 000 today. I am searching for someone locally that can help me with their investment/estate planning but honestly I'm getting a lot of 'deer in headlight' looks when I mention they are US citizens. Any advice is greatly appreciated!


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## Bevdeforges (Nov 16, 2007)

thethebaxter said:


> Oh, btw, Does any one know in determining value of an estate of a deceased USC and if the decedent owns a home with a non-USC spouse, what value of the house is to be included in the gross estate value. Is it the decedent’s 50% share of the FMV or the entire 100%. This matters tremendously to the surviving non-USC spouse as there is no basic exemption for transfer of estate to non-USC spouse (whereas transfer to USC to USC transfer is free of tax on the first $M (not sure how many millions).
> 
> Thanks.


Sorry for the late reply - somehow I missed your post before and just saw it when the thread got "bumped" by a new post.

The matter of where and how a home is taxed depends on a number of things, first of which is where is the home located? If it's in Canada, Canadian law gets first "dibs" on it. 

And as far as the US taxation goes, until the value of the entire estate gets to the threshold for having to file US estate taxes, it really doesn't matter. 
Cheers,
Bev


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## Bevdeforges (Nov 16, 2007)

USCNOMORE said:


> I will preface this question with an explanation that this is all very new to me and I have a thousand questions ... My parents are in their 80's, both US citizens and have lived in Canada as permanent residents for 41 years. They have asked that I assist them with estate planning (this should have been done 10-20 years ago). Can someone please tell me if they will be taxed by the US government on their estate when the last of them passes away. They have money is savings account, RIF's ($260 000)and they own their home, in Canada, mortgage free ($400 000)--total value for the two of them I would estimate at $650 000 today. I am searching for someone locally that can help me with their investment/estate planning but honestly I'm getting a lot of 'deer in headlight' looks when I mention they are US citizens. Any advice is greatly appreciated!


Only a very small percentage of estates winds up subject to US Federal estate taxes. The current threshold is something like $5 million - so unless your parents' estate is worth at least that much, they have no particular obligation to the US government, not even to file an estate tax form. If they are resident in Canada at the time of their deaths, it will be the Canadian laws that need to be taken into account. 
Cheers,
Bev


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## USCNOMORE (Apr 14, 2012)

Bevdeforges said:


> Only a very small percentage of estates winds up subject to US Federal estate taxes. The current threshold is something like $5 million - so unless your parents' estate is worth at least that much, they have no particular obligation to the US government, not even to file an estate tax form. If they are resident in Canada at the time of their deaths, it will be the Canadian laws that need to be taken into account.
> Cheers,
> Bev


That's good news ... Now to my next question with regard to their estate. If they bequeath their estate to myself and my two siblings, two dual (US/Canadian), one US, all living in Canada since 1971, are there tax implications for us? Would it be advantageous to have them leave the inheritance to Canadian grandchildren with perhaps a codicil in the will for gifting backs to us?


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## Bevdeforges (Nov 16, 2007)

USCNOMORE said:


> That's good news ... Now to my next question with regard to their estate. If they bequeath their estate to myself and my two siblings, two dual (US/Canadian), one US, all living in Canada since 1971, are there tax implications for us? Would it be advantageous to have them leave the inheritance to Canadian grandchildren with perhaps a codicil in the will for gifting backs to us?


If the estate isn't subject to US taxation, it's up to the Canadian estate tax folks how things work. The US estate tax is levied against the estate - not the heirs. 

If your siblings are resident in the US, they may have to show that the estate has been settled (and taxes paid) in order to bring their share into the US. But that is relatively simple to do. (Requires whatever the Canadian equivalent is to a probate certificate.)
Cheers,
Bev


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## USCNOMORE (Apr 14, 2012)

Bevdeforges said:


> If the estate isn't subject to US taxation, it's up to the Canadian estate tax folks how things work. The US estate tax is levied against the estate - not the heirs.
> 
> If your siblings are resident in the US, they may have to show that the estate has been settled (and taxes paid) in order to bring their share into the US. But that is relatively simple to do. (Requires whatever the Canadian equivalent is to a probate certificate.)
> Cheers,
> Bev


Kindest thanks for your prompt reply. None of us ever plan on living in the US ..., so this is very good news!


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