Hot Topics: Foreign Taxpayers Beware: U.S. Estate and Gift-Tax Law Can Hit Wallet Hard

IN RECENT YEARS, the Bay Area has received an influx of foreign investment from people living in Hong Kong, Taiwan and other Pacific Rim nations. Also immigrants have encouraged their relatives to invest here for reasons ranging from political or economic uncertainty in the home country to helping finance business or educational opportunities for family members in the United States.  Unfortunately, these "foreign investors" -- individuals who are neither U.S. citizens nor permanent residents -- often are unaware of the tax implications of their investments.

In general, a foreign investor with a U.S. net estate composed of U.S. assets exceeding $60,000 in value will be subject to a federal estate tax upon death. (Sometimes, treaty provisions between a foreign investor's country and the United States can alter this result.) If a foreigner becomes a U.S. citizen or moves to the United States permanently, his or her worldwide holdings outside the United States will then become exposed to estate tax law.

Consequently, foreigners with substantial holdings outside the United States must carefully plan their estates prior to becoming either U.S. citizens or permanent residents.

NOTE: The balance of this article has been incorporated into the Tax Prophet's Action Guide entitled, "Foreign Investors: U.S. Income, Gift and Estate-Tax Consequences" described below:

Foreign Investors: U.S. Income, Gift
and Estate-Tax Consequences

Non-U.S. taxpayers investing in the United States encounter a series of complex income, gift and estate-tax rules. In addition, stay in the U.S. too long and you could become subject to U.S. income taxes on your world-wide income! This Action Guide discusses the common tax traps facing non-U.S. taxpayers and how to avoid them. It is a must read for these taxpayers and their advisors.