Cross-Border Planning - The Unforeseen US Estate Tax Implication

Guest Contributor: Peter J. Merrick, TEP

Website: EXIT WITH SUCCESS - EXPERT IN CROSS-BORDER RISK

Cross-Border Planning - The Unforeseen US Estate Tax Implications on Life Insurance: A Guide for Non-Residents with Situs Assets For non-resident Americans, accidental Americans (those with inherited US citizenship), non-resident green card holders, and foreign nationals with significant US financial interests, understanding the US tax system is crucial. Especially when it pertains to non-American life insurance policies and situs assets.

A 'situs asset' refers to financial interests considered located within the US. Importantly, death benefits from non-American life insurance policies are classified as such, potentially incurring US estate taxes. Additionally, foreign nationals who don't reside in the US but maintain sizeable financial stakes in US stocks, bonds, real estate, or businesses fall under the same US estate tax risk.

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Given this, many might contemplate transferring their policies into an Irrevocable Life Insurance Trust (ILIT) to mitigate estate tax implications. However, challenges exist:

1. Three-Year Look-Back Rule: Transferring a policy to an ILIT doesn't immediately exempt it. If the original owner dies within three years of this transfer, the benefits are reincorporated into the taxable estate, nullifying the transfer's tax-avoidance intent.
2. Policy Standards Mismatch: Non-American life insurance policies might not satisfy US IRS criteria for tax and estate exemption. These policies could lack specific provisions mandatory for US-compliant policies, rendering them ineligible for the anticipated tax advantages.

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For individuals in the specified categories, having non-American life insurance policies, US financial interests, or tangible assets like homes and businesses in the US, careful navigation is essential.

It's paramount to engage with a financial advisor proficient in life insurance, cross-border treaties, and the intricacies of the US tax code. Such expertise ensures your decisions are well-informed, shielding you from unforeseen tax ramifications and ensuring full compliance.

If you are a professional advising a client who falls in this situation or if you personally have cross-border interests in the US and you want to review your situation, schedule an introduction to Peter J. Merrick by CLICKING HERE.

Exploring the U.S. for Wealth Security

Who is Peter J. Merrick, CFP, TEP?

Peter J. Merrick, TEP, is a Commentator, Keynote Speaker, and expert in US/ Canadian/International cross-border Estate Planning and Insurance and annuity Planning.

Over three decades, Peter specialized in de-risking and saving his clients up to 40% of their wealth that would have otherwise been paid out because of poor planning. These proven solutions effectively shelter income, reduce taxes on income and estates and defer or eliminate tax on investments and creditor-proof assets for domestic and international clients.

Peter is also an author.

Peter has written three comprehensive LexisNexis business, legal, tax, succession and estate planning textbooks. For 18 years, Peter wrote a column for LexisNexis called "The Bottom Line," one of the largest professional tax and accounting publications.?Peter was also a university and college finance and financial planning lecturer for over 12 years.

Peter is also the author of The Business Novel - The King of Main Street. To read reviews, please click here.

To receive a complimentary digital copy of "The King of Main Street," email me at [email protected]

In 2019, Peter relocated to San Diego, California, from Toronto, Canada. Right now, he sees a number of wealth-saving opportunities resolving long-ignored issues for Canadians in corporate planning, cross-border US and international planning, financial, philanthropic, and estate planning implementation, utilizing Canadian/US Life Insurance and Canadian/US Annuity strategies.

Peter works with high-net-worth individuals and their legal, tax and financial professionals performing Canadian estate freezes and terminal tax planning, as well as those who seek to relocate to the US or have financial interests in the US from places like Canada and other national jurisdictions.

It is absolutely essential that you partner with and work with an expert familiar with the Canadian Income Tax Act, the IRS Tax Code, and US/International Tax Treaties before implementing any strategy in the areas of Canadian estate freezes, terminal tax planning, and cross-border planning.

If you are a professional advising a client who falls in this situation or if you personally have cross-border interests in the US and you want to review your situation, schedule an introduction to Peter J. Merrick by CLICKING HERE.

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