SPRING SUMMIT
MAIN SESSION
TAB 12
INTERNATIONAL
ESTATE PLANNING
ISSUES
ST. LOUIS, APRIL 2007
© 2007 American Academy of Estate Planning Attorneys
INTERNATIONAL
ESTATE PLANNING ISSUES
TABLE OF CONTENTS
I.
United States Clients With Assets Abroad ...........................................................................1
II. Citizenship Issues....................................................................................................................1
A. United States Citizenship ................................................................................................ 1
B. Other Citizenship ............................................................................................................ 2
C. Expatriates....................................................................................................................... 2
III. Taxation of Citizens and Residents .......................................................................................3
A. Citizens and Permanent Residents .................................................................................. 3
B. Residency ........................................................................................................................ 4
IV. Taxation of Non-Resident Aliens ..........................................................................................4
A. Income............................................................................................................................. 4
B. Estate Taxation................................................................................................................ 5
C. Situs of Assets ................................................................................................................. 5
D. Gift Taxation ................................................................................................................... 6
V. Treaties ....................................................................................................................................6
VI. Taxation of Transfers to Non-Citizen Spouses ....................................................................7
A. Marital Deduction ........................................................................................................... 7
B. Annual Exclusion ............................................................................................................ 8
C. Joint Tenancy Creation ................................................................................................... 8
VII. Foreign Trusts .........................................................................................................................8
VIII.
Gifts / Bequests from Foreigners ................................................................................11
IX. Charitable Giving .................................................................................................................11
X. Case Studies ..........................................................................................................................12
ST. LOUIS, APRIL 2007
© 2007 American Academy of Estate Planning Attorneys
International Estate Planning Issues
Steve Hartnett
Associate Director of Education
American Academy of Estate Planning Attorneys
I.
United States Clients With Assets Abroad
Often, members ask what to do when a client has assets in another jurisdiction. It is critically
important that counsel be sought in the other country to advise regarding those assets, at least if
they are of significant value. Funding foreign assets into a United States trust could have
significant negative implications. For example, funding Canadian property into a trust typically
is a recognition event under Canadian law, triggering income taxation in that country. Similarly,
an intervivos transfer of Bahamian realty into a trust results in a very large stamp tax while a
testamentary transfer may not.
Some countries may not even allow a transfer if it infringes upon statutory heirs. This is called
“forced heirship.” Countries in this category include France, Switzerland, and Middle Eastern
countries (as well as the U.S. state of Louisiana).
Again, always seek local counsel before transferring foreign assets into U.S. trusts Further,
always seek local counsel when you suspect the client may be a citizen or resident of another
country as well as of the United States. A good source for finding local counsel in foreign
jurisdictions is www.lexmundi.org . It lists firms for approximately 100 countries, as well as for
every Canadian pronvince and U.S. state.
II.
Citizenship Issues
A.
United States Citizenship
A threshold question for estate and gift taxation is whether the person is a citizen of the
United States. A person is a citizen of the United States if he or she was born in the
United States. U.S. Const. Amend XIV, sec. 1. For citizenship purposes, the United
States includes Guam, Puerto Rico, the U.S. Virgin Islands, and 12 nautical miles around
each of these. A person born on U.S. soil is a citizen even if the person was born here
and was only in the United States momentarily and never returned. However, a person
born on U.S. soil is not a U.S. citizen if not then subject to the jurisdiction of the United
States. Therefore, any child born with diplomatic immunity here would not have U.S.
citizenship. For example, a diplomat from Botswana is posted to the Botswanan
Embassy to the United States and recognized by the United States as a Botswanan
diplomat. She has a child in Washington. That child is not a United States citizen. If her
sister visited her from Botswana and had a child in Washington, that child would be a
© 2007 American Academy of Estate Planning Attorneys, Inc. All rights reserved.
1
United States citizen because the diplomatic immunity would not extend to the sister or
her child.
A person may also gain U.S. citizenship if born outside the United States. If both parents
are U.S. citizens, at least one of the parents must have resided in the United States prior
to the child’s birth. 8 U.S.C. sec. 1401(c). If only one parent is a citizen of the United
States, that parent must have resided in the United States for at least five years, at least
two of which must have occurred after his or her 14th birthday. So, by definition, the
parent also must have been at least age 16. A person may also gain U.S. citizenship by
being naturalized as a U.S. citizen.
B.
Other Citizenship
Once you have determined the individual’s citizenship under U.S. law, you may also
have to determine his or her citizenship under a competing country’s laws, if applicable.
Just because a person has United States citizenship does not mean he or she cannot or
does not have citizenship in one or more other countries, as well. In fact, even if the
person is naturalized in the United States, taking an oath of allegiance and renouncing all
other citizenships, he or she may continue to be a citizen of another country. For
example, the United Kingdom does not recognize an individual’s right to renounce
citizenship because the person is a “subject of the crown” and does not have the
individual right.
C.
Expatriates
Some people do not like the fact that they are not living in the United States but still owe
tax and have tried to lose their citizenship and, thus, the tax burdens it carries. However,
Under Section 877, any intentional expatriation to avoid taxation, while resulting in loss
of citizenship will not result in a change in the tax for ten years. Note, in addition to
citizens, this applies to long-term residents, i.e., individuals who had a green card during
parts of at least 8 of the 15 years prior to expatriation.
Under prior law, a person is deemed to have had a principal purpose of avoiding taxation
if 1) his/her average annual income for the previous 5 years was over $100,000 (inflation
adjusted after 1996), or 2) his/her net worth was over $500,000 (inflation adjusted after
1996). Clearly, this cast a broad net.
The presumption of a tax avoidance purpose was removed if the person made a ruling
request within 1 year of expatriation and 1) the individual became at birth a citizen of the
United States and a citizen of another country and continued to be a citizen of such other
country; 2) the individual becomes (not later than the close of a reasonable period after
loss of United States citizenship) a citizen of the country in which --(I) such individual
was born, (II) if such individual is married, such individual's spouse was born, or (III)
either of such individual's parents were born; 3) An individual who in the 10- year period
ending on the date of loss of United States citizenship was present in the United States for
30 days or less; or 4) an individual who expatriates himself or herself prior to attaining
age 18-1/2.
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© 2007 American Academy of Estate Planning Attorneys
Current law: After much debate since the prior overhaul in 1996, the American Jobs
Creation Act (“AJCA”) significantly modified the rules pertaining to expatriation. The
rules apply to U.S. citizens. LPRAs who were physically present in the U.S. for any part
of 8 of the 15 years prior to expatriation are treated as citizens for this purpose.
Essentially, if the rules apply, the individual is still taxed on income notwithstanding the
expatriation for a period of 10 years. In order to avoid the application of expatriation
rules, a person must:
 Have had income tax liability in less than $124,000, on average, over the prior 5
years.
 The individual must have a net worth under $2,000,000
 The individual must say they’ve complied with the Internal Revenue Code for the
past 5 years.
There are some exceptions, but they are very narrow compared to the prior law:

Dual nationals, but only if:
o Dual citizen at birth AND
o No substantial contact with U.S.
 Never U.S. resident
 Never had U.S. passport
 Not present in U.S. for more than 30 days in any of last 10 years.

Minors
o U.S. citizen at birth
o Expatriate by age 18 ½
o Neither parent U.S. citizen at child’s birth
o Not present in U.S. for more than 30 days in any of last 10 years.
In addition to continued taxation for 10 years, if someone is found to have expatriated
himself or herself for tax reasons, he or she may be barred from entry to the United States
even as a visitor. This kicker has chilled expatriation.
III. Taxation of Citizens and Residents
A.
Citizens and Permanent Residents
If a person is a citizen or lawful permanent resident alien (LPRA) (green card holder) of
the United States, he or she is income taxed on their worldwide income and estate and
gift taxed on worldwide assets. Thus, it is important to question a client to determine his
or her citizenship / LPRA status.
© 2007 American Academy of Estate Planning Attorneys, Inc. All rights reserved.
3
B.
Residency
If the person in question is neither a citizen nor LPRA, the next question is whether he or
she is a “resident” of the United States. Here, income tax and estate tax analyses diverge.
For income tax purposes, you count the days. A person is considered a U.S. resident for
tax purposes if they have “substantial presence” for the calendar year. Substantial
presence is met if physically present in the United States on at least:
1. 31 days during the current year, and
2. 183 days during the 3-year period that includes the current year and the 2 years
immediately before that, counting:
a. All the days present in the current year, and
b. 1/3 of the days present in the first year before the current year, and
c. 1/6 of the days present in the second year before the current year.
Note: You do not count days in which you are physically present in the United States if
you are an “exempt individual” that day, including foreign government employees,
diplomats, professional athlete, etc. Also, if you live in Canada or Mexico and commute
into the United States, that is not counted.
The term United States includes the following areas: All 50 states and the District of
Columbia, the territorial waters of the United States, and the seabed and subsoil of those
submarine areas that are adjacent to U.S. territorial waters and over which the United
States has exclusive rights under international law to explore and exploit natural
resources. The term does not include U.S. possessions and territories or U.S. airspace.
I.R.S. Pub. 519.
For estate tax purposes, “residence” is akin to the common law concept of domicile. In
other words, a person is a resident of the United States if they have physical presence
with no present intent to go elsewhere. Once this domicile is established, it remains until
a new one is established. A person may have “residence” in the United States even if not
here legally. While this is a subjective question of intent, many objective factors are
examined including where the person’s employment, friends, family, and homes are
situated. If the person is a resident for estate tax purposes, he or she is taxed on his
worldwide assets and gets the same applicable exclusion amount as a citizen, i.e. $2
million in 2007.
IV. Taxation of Non-Resident Aliens
A.
Income
Those who are neither citizens nor residents of the United States, i.e. Non-Resdient
Aliens or NRAs are only income-taxed on income from U.S. sources. U.S. source
income includes: 1) interest income payble by a federal, state, or local government, a
domestic corporation, or a U.S. resdient, 2) dividend income paid by a domestic
corporation, a foreign corporation (if 25% of its income over the prior 3 yrs was
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© 2007 American Academy of Estate Planning Attorneys
effectively connected with a U.S. trade or business), 3) income from personal services
performed in the U.S., 4) rents/royalties from property used/located in the U.S., 5) gain
on U.S. realty (either owned directly or through an entity that owns U.S. realty).
However, “portfolio debt” (see situs of assets below), is not subject to U.S. income tax.
Generally, Section 871 provides for a flat tax of 30% on U.S. source income that is “fixed
or determinable periodic gains, profits, and income.” (“FDAP.”) U.S. source capital
gains are typically exempt unless the non-US person is physically present for 183 days or
more during the year in which the gain is realized.
The determination of whether something is “effectively connected” to a US “trade or
business” is somewhat fuzzy. A trade or business is more likely to exist if it is “regular,
continuous, and substantial,” rather than “incidental and sporadic.” Activities of
partnerships, estates, and trusts are attributable to the partners and beneficiaries in making
that determination. If the income is “effectively connected” to a US trade or business,
then it is taxed at the normal graduated rates rather than the 30% flat rate for other US
source income.
B.
Estate Taxation
Those who are neither citizens nor residents of the United States, i.e. Non-Resdient
Aliens or NRAs, are not taxable on their worldwide assets as citizens and residents are.
However, NRAs do not get the full applicable exclusion amount, either. In fact, the
applicable exclusion for an NRA is only $60,000. Section 2102. Note, this NRA AEA
was not affected by EGTRRA.
C.
Situs of Assets
Assets within the United States are described in Section 2104. Besides tangible assets
physically present in the United States, assets within the United States include stock in a
U.S. corporation. However, one may be able to effectively “move” such assets, even
including realty, “offshore” so that they are not included in the estate. For example, an
interest in a non-U.S. corporation is not included in the estate of a NRA. The NRA could
set up a corporation in another country and have that corporation own the U.S. realty. Of
course, to avoid the Service disregarding this, ideally the entity should have some
business dealings and other assets.
Some assets which one would expect to have a U.S. situs are statutorily deemed to be
outside the United States. Section 2105. U.S. bank deposits unless effectively connected
with a U.S. trade or business (including deposits in U.S. institutions or U.S. branch of
foreign banks) are deemed outside the United States. Portfolio debt issued after July 18,
1984 is deemed outside the United States. Portfolio debt includes bonds, notes or other
form of debt which i) is not issued by a corporation or partnership in which the decedent
or related parties have 10% or more, ii) is either in registered form or, if in bearer form,
has a legend or other method to prevent a U.S. citizen or resident from acquiring it and
the interest is payable outside the U.S. Life insurance proceeds are considered outside
the United States even if payable from a U.S. company. Works of art owned by an NRA
and in the United States solely for exhibition at a public gallery or museum are deemed
outside the United States.
© 2007 American Academy of Estate Planning Attorneys, Inc. All rights reserved.
5
D.
Gift Taxation
Gift tax is imposed on gifts by NRAs only as to tangible property situated within the
United States. Section 2501(a)(2). A prime example of this would be realty. Another
example would be any tangible personal property, such as physical currency. So, if an
NRA hands cash to someone on U.S. soil, that’s a taxable gift. If the NRA converts it
into an intangible property, like an interest in money market account, then there is no gift.
If there is a gift, the NRA can get an annual exclusion. Section 2506(b). However, if
there is an obvious step transaction, the Service will look at the form over the substance
and find a gift. For example, in Davies v. Comm’r., 40 T.C. 525 (1963), a father in the
United Kingdom wanted to give his son real estate in Hawaii while avoiding U.S. gift
taxation. The father gave the son cash which the son immediately used as a
downpayment for the realty. Subsequent cash gifts were made and the son used those to
pay down the note. Interestingly, the court found the original gift was of realty whereas
the subsequent gifts were not. The moral of this story is to make sure to use lots of time
between steps in any such transaction. Also, note that while works of art in the United
States solely for exhibition are excluded for estate tax purposes, they are not excluded for
gift tax purposes. So, if an NRA makes a gift of their Picasso while it is on loan to the
Getty Museum in Los Angeles, it would be a taxable gift while if the same NRA died and
left the Picasso to the same person, it would not be estate taxable.
V.
Treaties
The preceding discussion provides the default rules under United States law, assuming no
treaties are in play.
If a person is a resident or citizen of multiple countries, you need to determine if there is an
estate, gift, or income tax treaty (also called a Convention) between the United States and such
country. The United States has estate and/or gift tax treaties with Australia, Austria, Canada,
Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, Norway, South
Africa, Sweden, Switzerland, and United Kingdom. Generally, the treaties establish who is a
domiciliary of each country, what property can be included in the estate of the non-domiciliary
state, the deductions, exemptions, and credits available to non-domiciliaries, any foreign tax
credits, etc. The United States has income tax treaties with numerous countries.
Each treaty, whether pertaining to income, estate, or gift taxes, has its own nuances, hammered
out due to the unique political and economic factors in play between the United States and that
country at the time the treaty was executed. It is essential to look to see if there is a treaty
between the country of interest and the United States. The main treaty is called a “Convention”
and subsequent modifications / amendments is termed a “Protocol.” Be sure to check for both.
If a treaty exists, it overrides United States law to the extent it conflicts with any federal, state, or
local law.
Publication 901, which provides a nice summary of all treaties pertaining to income taxation,
with country by country explanations, is attached as Exhibit A. The Convention on estate and
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© 2007 American Academy of Estate Planning Attorneys
gift taxes between the United States and France is attached as Exhibit B. The Protocol amending
the Convention on estate and gift taxes between the United States and France is attached as
Exhibit C. Exhibit D provides a technical explanation of the Protocol as well as information on
France’s estate tax system.
VI. Taxation of Transfers to Non-Citizen Spouses
A.
Marital Deduction
One area of confusion is when a Qualified Domestic Trust (QDOT) is required. First, the
citizenship of the decedent is irrelevant in the analysis. The only time a QDOT must be
used is when 1) you want a marital deduction, and 2) the decedent’s spouse is not a
citizen of the United States. Generally, a bequest to a non-citizen spouse will not qualify
for the marital deduction. The exception to the rule is if the property is left in a QDOT
and otherwise qualifies for a marital deduction. If no QDOT is set up, the surviving
spouse must irrevocably assign the property to a trust meeting the QDOT requirements
prior to the due date of the estate tax return. Another option is for the spouse to become a
U.S. citizen by that time.
A QDOT must require that at least one trustee be a person that is a U.S. citizen or a
domestic corporation and any distributions from such trust other than income must
require their approval or they must have the right to withhold the estate taxes which
would be due. An election is made on the estate tax return to treat the trust as a QDOT
and such election must be made on the last return prior to the due date or, if no timely
return, then on the first return filed. The QDOT situs must be in the United States. There
are many other technical requirements for QDOTs, for example relating to investments.
They are all included in the Academy documents. An outright gift in a testamentary
instrument can be irrevocably assigned to a QDOT. If an irrevocable trust provides for a
continuing trust for the spouse that seeks a marital deduction (QTIP, e.g.) and a QDOT is
not used, a Special Co-trustee would be needed to modify the trust to include QDOT
provisions, or a judicial reformation could be sought. Note, a QDOT cannot be done over
one year from the due date of the estate tax return.
QDOT Taxation. Essentially, a QDOT defers tax. Upon a taxable event, a tax is levied
equal to the tax that would have been imposed had a QDOT not been used to get the
marital deduction.

Tax on distribution of corpus to surviving spouse
o Even if estate tax repeal
o Except for hardship for HEMS


For sposue

For someone spouse legally obligated to support

No other reasonably available source
Tax on balance at death of surviving spouse
© 2007 American Academy of Estate Planning Attorneys, Inc. All rights reserved.
7
o Not if death after/during estate tax repeal

Tax on disqualification of QDOT

Income distribution not subject to tax

Income taxation under Sub J (not a grantor trust)
o Taxed to beneficiaries to extent of distributions

So, taxed to surviving spouse
Should a QDOT always be used?
Here are some factors to consider in making the determination:
B.

Spouse’s future intent of becoming a US citizen

Cost to administer the QDOT

Projected transfer tax cost avoided and incurred in future

Growth of assets to be put in QDOT

Spouse’s loss of control
Annual Exclusion
In addition to the availability of a QDOT, gifts to a non-citizen spouse qualify for an
annual exclusion. The gifts must be of a present interest, otherwise qualify for the
marital deduction, and may be in an amount up to an inflation-adjusted $125,000 in 2007.
C.
Joint Tenancy Creation
The creation of joint property usually constitutes a completed gift if the parties provide
differing consideration. Typically, this is not a problem when spouses are involved
because of the unlimited marital deduction. However, there would be a problem with a
non-citizen spouse. Accordingly, Congress modified the rule and the creation of joint
tenancy when one spouse is not a citizen is not a completed gift. This rule applies for
joint tenancies created before January 1, 1982 and after July 13, 1988. Between 1982 and
1988 a joint tenancy created may be a completed gift if, under local law, a severance may
only be effectuated by the agreement of the donee spouse (or both spouses). Typically,
this means that tenancy by the entirety would not have been a completed gift while other
joint tenancies would have been if created during the interim period.
VII. Foreign Trusts
Foreign trusts have significantly different rules than domestic trusts. This section is not designed
to cover every possible aspect of foreign trusts. Rather, it is intended to allow you to recognize a
foreign trust when you see it and to be able to spot issues in regard to such a trust. As we must
first deterime citizenship and residency to determin taxation of individuals, we must first
determine the nature of a trust in order to determine how the Foreign Trust rules apply to it.
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© 2007 American Academy of Estate Planning Attorneys
Section 7701(a)(30)(E) specifies that a trust is a United States person if 1) a U.S. court can
exercise primary supervision over the trust administration (the Court test), and 2) one or more
U.S. persons have authority to control all substantial decisions of the trust (the Control test).
Court Test:

Federal, state, local court

Not U.S. territories

If U.S. and foreign court can exercise primary supervision, ok

Not if trust has jurisdictional migration clause if court exercises jurisdiction
o Unless migrates only if nationalization or invasion

Safe Harbor: Satisfy test if:
o No migration clause (except invasion/nationalization)
o Trust does not say to administer outside U.S.
o Trust is in fact administered in the U.S.
Control Test:

U.S. person(s) control all substantial decisions
o When and if to make income / corpus distributions
o How much to distribute
o Who should receive it
o Allocation between principal and income
o Termination of the trust
o Compromising / abandoning claims against the trust
o Sue and defend suits agains the trust
o Trustee removal / replacement / addition
o Appointing successor trustee
o Investment decisions. Advisor doesn’t matter if trustee can terminate advisor’s power
over investments at will.

12 month grace period if inadvertant change of who has control
o death, incapacity, resignation, change in residency of power holder
o If fixed within 1 year, retroactively fixed
o If not fixed, foreign trust from inadvertant change
o Service can extend the 1 year period if due to circumstances beyond trust’s control
cannot be done w/in the 1 year period.
A foreign trust is one that is not a U.S. person under Section 7701(a)(30)(E). Section
7701(a)(31)(B).
© 2007 American Academy of Estate Planning Attorneys, Inc. All rights reserved.
9
Transfers to a Foreign Trust
Generally, if there is a US beneficiary of a foreign trust and, if a US person makes a transfer to
the foreign trust, the transferor is treated as the owner of that portion of the trust for the taxable
year, notwithstanding the fact that he or she would not be treated as the owner under the standard
grantor trust rules, and notwithstanding the fact that someone else may be the owner under
section 678. This does not apply if the transfer is due to death or a fair market value purchase.
The question of whether there is a US person as beneficiary hinges on whether anything may be
paid to a US person. Payments to a foreign partnership, foreign trust, foreign estate in which a
US person is a partner or beneficiary is considered to a US person. A person who first became a
US person more than 5 years after the date of the truasfer is not treated as a US person. If a nonUS person becomes a US person within 5 years of the transfer, s/he will be treated as if the
property was transferred on the date s/he became a US person.
Generally, Treas. Reg. Section 1.684-1 provides that any U.S. person who transfers property to a
foregin trust shall recognize gain on the transfer. Unfortunately, those regulations provide that
any loss on the transferred asset cannot be used to offset the gain. There are some exceptions to
the general rule, including two common ones:

If the U.S. person is treated as the owner of the foreign trust under Section 671.

If the transfer was due to the death of the U.S. transferor and there is a step-up in basis
under Section 1014(a).
If a grantor trust is the transferor, the owner/grantor is considered the transferor.
Reporting Requirements
A US person who is treated as the owner of any portion of the Foreign Trust must makes sure
that the trust files Form 3520-A and furnishes the information to every U.S. person treated as an
owner of the trust or who receives any distributions from it. The following events must be
reported: the creation of a Foreign Trust by a US person, the transfer of assets to a Foreign Trust
by a US person (even at death), the death of a US person if s/he was the owner of any portion of
the Foreign Trust or any portion was included in his/her taxable estate, the change in residence of
a trust from from domestic to foreign. In determining whether fair market value is exchanged,
obligations are ignored unless in writing, not exceeding 5 years in length, in U.S. dollars, the
yield is from the AFR to 130% of the AFR and the transferor reports the status of the note on
Form 3520 each year.
Distributions from a Foreign Trust
A beneficiary of a Foreign Trust must obtain information for property characterization of
distributions. If adequate records are unavailable, the entire distribtuion will be treated as an
Accumulation Distribution. The Foreign Trust should issue the beneficiary a Foreign Grantor
Trust Beneficiary Statement (“FGTBS”) similar to a K-1. The US beneficiary must complete a
Form 3520, parts I and II.
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VIII. Gifts / Bequests from Foreigners
Generally
There are no U.S. tax consequences for receipts of gifts / bequests from non-U.S. persons (an
individual neither a citizen nor resident of the U.S., a foreign estate, a foreign partnership, or a
foreign corporation). There may have been tax consequences from the foreign jurisdiction.
However, recipients must consider how the bequest/gift might impact their own estate planning.
Reporting Requirements
Foreign gifts/bequests must be reported by the recipient under some circumstancs. The gift must
be from a non-US person but does not include: 1) amounts which would have been covered
under Section 2503(e) for tuition and medical care, 2) distributions from foreign trusts, and 3)
contributions by foreigners to trusts (foreign or domestic) with U.S. beneficiaries unless the
beneficiaries are treated as receiving in the year of transfer (e.g., Crummey powers).
The threshold limit for reporting is $100,000 from a single non-U.S. donor (individual or estate)
during the taxable year (in aggregate). For foreign partnerships and corporation, the limit is
$10,000 total from all such foreign partnerships and corporations for the year. If donors are
related, you must aggregate those gifts. Reporting is accomplished on Part IV of Form 3520,
which is filed along with the individual’s Form 1040. A copy of Form 3520 must also be sent to
the Philadelphia Service Center. Non-compliance may result in the foreign gift becoming
income taxable and the application of other penalties.
Other countries may have rules for the receipt of gifts/bequests coming in from outside sources,
like the United States. These and other aspects for beneficiaries in other countries should be
considered and outside counsel consulted.
Transport of Currency
The physcial transport of currency or other monetary instruments in excess of $10,000 requires
the filing of a Currency and Monetary Instrument Report (CMIR). 31 CFR 103.23(c)
The obligation to file is solely on the person who physically transports, mails, ships, or receives
currency or monetary instruments into or out of the United States. The report must be made to
the appropriate Bureau of Customs and Border Protection Officer or with the Commissioner of
Customs at the time of entry or departure from the United States.
If someone receives in excess of $10,000 from any place outside the United States, he or she
must report it within 15 days of receipt.
IX. Charitable Giving
Citizens and residents of the United States can make bequests and gifts to charitable
organizations and get a deduction limited only by the value of the contribution. Sections 2055(a)
© 2007 American Academy of Estate Planning Attorneys, Inc. All rights reserved.
11
and 2522(a). These bequests and gifts can include contributions to foreign entities or to be used
abroad. See Reg. § 20.2055-1(a)(4) and Reg. § 25.2522(a)-1(a)(4).
Like citizens and residents of the United States, NRAs can get an unlimited estate tax or gift tax
charitable deduction. The deduction is allowable even if the charitable bequest is made from
assets that are not within the United States. Section 2106(a)(2)(D); TAM 9040003. However,
unlike citizens and residents, NRAs cannot take estate and gift tax charitable deductions for
contributions to foreign corporate charities. Further, deductions to trusts are not deductible
unless they are to be used within the United States.
There is also an income tax charitable deduction. However, for all taxpayers, this deduction is
limited to organizations created or organized in the United States. Section 170(c)(2)(A). Note,
however, that treaties may override this outcome. For example, treaties between the United
States and Canada, Israel, and Mexico provide that contributions to charities in those countries
will qualify for a charitable income tax deduction.
The strict requirements of the income tax charitable deduction can be met by making the
contribution to a United States entity that is used to support the foreign charity. These are called
“friends” organizations or “supporting organizations.” If the friends or supporting organization
is a mere conduit, it will not be deemed to qualify for the deduction. However, if it retains
enough review and control over the funds and projects, even though some or all of those are
abroad, it can qualify for an income tax charitable deduction.
X.
Case Studies
Case #1
John (60) and Mary (58) Smith
John: Father born U.S.A.; moved to Switzerland in 8th grade
Mother born France
John born France
Assets:
$4,000,000
$500,000
$1,000,000
$100,000
Farm on the Cote d’Azur (worth 3 mil euros)(separate)
½ community property interest in CA home
½ community property interest in CA rental property
certificates of deposit held at the Los Angeles branch of Banque National
de Paris (separate)
Mary: Father born U.S.A.
Mother born U.S.A.
Mary born U.S.A.
$500,000
$1,000,000
$400,000
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½ community property interest in CA home
½ community property interest in CA rental property
Apple, Inc. stock inherited from mother (separate)
© 2007 American Academy of Estate Planning Attorneys
John and Mary split their time between San Francisco and the Cote d’Azur. John is an author,
currently researching a book on wine growing techniques in France and the United States. Mary
raised the couple’s three children and now helps John with his book.
Case #2
Ivan (50)
Ivan
Father born U.S.S.R.
Mother born U.S.S.R.
Ivan born U.S.S.R.
Assets:
$5,000,000 Oil and gas leases in Russia, U.S., and Nigeria
$500,000 condominium in Houston, TX
$500,000 U.S. liquid investments held with TDAmeritrade
Ivan grew up in the cold of Siberia and learned the oil industry there. He began acquiring leases
there after the fall of the Soviet Union. He then acquired more leases in the U.S. and Nigera.
For the past several years, he has spent 30% of his time at his Houston home and 70% of his time
travelling and staying in hotels while working. He plans to retire in a few years to Belize or the
Cayman Islands.
Case #3
Grace and Rainier
Grace:
Father born U.S.A. dual Irish / U.S.A
Mother born U.S.A.
Grace born U.S.A.
Rainier:
Father born Monaco
Mother born Monaco
Rainier born Monaco
Assets:
Rainier:
$100,000,000 inherited property in Monaco and France
Grace:
$10,000,000 realty in Monaco and France
$4,000,000 Co-op in Manhattan
$2,000,000 U.S. corporate stock
Upon their marriage 5 years ago, Grace became a citizen of Monaco and renounced her U.S.
citizenship.
© 2007 American Academy of Estate Planning Attorneys, Inc. All rights reserved.
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