# Financial implications of Renouncing (aside from the fee)



## sueinwales (Oct 4, 2017)

Trying my best to figure all this out, but it's very hard to find information. I (and my 2 adult children) really have no interest in remaining a US nationals, but worry about financial implications of renouncing. No property in USA, no US based pension or other income. My only tie is as a beneficiary of 2 trusts set up by my parents before their deaths (one is labelled a generation skipping trust). 

For myself, it is possible that one of the trusts could be dissolved and the remaining funds distributed to me- does anyone have a view as to whether NOT being a US citizen at this point would make any difference from an American tax point of view?

For my children the dissolution of the trust(s) will be a certainty: the GST may be dissolved in just a few years (if not, then it will certainly be dissolved at the point of my death). So, similarly, are there any implications to them if they give up US nationality before the Trusts are dissolved?

And finally, while the Trusts are in place and distributions made from them to us, will these distributions be treated differently from the American side if we are no longer US nationals? For example, would any witholdings be made to cash distributions?


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## Moulard (Feb 3, 2017)

I am not really familiar with the nuances of trust distributions and even less so for GSTs... but here is some food for thought based on my limited understanding.

NRAs are subject to US income tax only on their US source income, generally at a 30% withholding rate.

My understanding is that a beneficiary of a trust typically pays tax on the distribution that they receive, but not on the component that is from the trust principal.

The trust would issue a K-1, which breaks down the distribution, or how much of the distributed money came from principal versus interest and withhold income tax on the taxable component.

Absent any particular clause in an income tax treaty, the US would have the primary right to tax it, and you would likely get some form of tax relief in the (I assume UK) to reduce the double taxation that would result according to UK income tax rules.

Its worth noting that NRAs are also subject to estate, gift and generation-skipping transfer taxes - but only on US situs assets. 

what is US taxable will depend greatly on the assets held by the GST. 

Things like US situs real property, tangible personal property, stocks of US companies, cash deposits held with US mutual funds, some debts of US obligors, etc would all be considered US sourced.

Its also worth noting that in addition to an income tax treaty with the UK, I believe that the US also has an estate tax treaty with the UK. 

There are a bunch of tax planning things that can be done to reduce potential income and estate taxes but they would involve cooperation of the trustees and proper advice.


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## 255 (Sep 8, 2018)

sueinwales -- Both of your trusts appear to be "irrevocable" trusts. In the U.S., taxes are paid as they occur; so any distribution of income will be taxed at your normal U.S. rates, while you're still U.S. citizens. After you become an NRA, as Moulard said, and depending on the specifics of the distribution, you may be subject to a U.S. withholding tax of 30% (which is probably more than your normal U.S. income tax, as a U.S. citizen, since capital gains and dividends both have preferred tax rates.) There is no U.S. tax on principal distributions either way. If you are an NRA -- you will no longer have an obligation to file U.S. tax returns. You need to review the specifics of the trusts and in consultation with the Trustee(s,) it may be to your advantage to delay expatriation until the trusts are closed (from a U.S. tax perspective.)

You didn't ask, but from a UK tax perspective, your taxes appear to be based on your UK residency -- so you'll have an obligation whether you're a U.S. citizen, or not. Here is an interesting article on the subject: 5 Issues for UK Resident Beneficiaries of US Trusts - Ingleton Partners Ltd Cheers, 255


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## sueinwales (Oct 4, 2017)

Thanks for the very helpful advice. We are feeling more and more like renouncing, but caution whispers, as Moulard says, to seek proper advice. Question is, where to find it- what sort of professionals should I be approaching?

All suggestions welcome. I would really like to avoid any pitfalls that i can.


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## Bevdeforges (Nov 16, 2007)

About the only thing you can do, practically speaking, is to consult with whoever you would normally do regarding the trusts and simply ask what the ramifications would be of one of the parties in the trust not being a US citizen. And, as 255 mentions, to check on the UK tax ramifications of whatever distribution or settlement there would be for a UK citizen. After that, it depends mostly on your status as of the date that the distribution or other transaction actually occurs.


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