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Aspects of Estate Planning for
Persons with US Connections
Derren Hayden Joseph - Hayden T Joseph CPA LLP
Ann Marie Regal ...
• The information presented herein is for general purposes and has not taken into consideration any specific
needs or obje...
Introduction
Taxes
US Taxes
There are three main types of taxes in the US.
• Income tax – all sources of income are taxable at various rates....
US Taxes
There are three main types of taxes in the US.
• Estate tax –
• US to US spouse - unlimited marital exclusion
• U...
Income Taxes
Responsibilities of US Persons
• Who are US persons
• Worldwide Taxation
• Reporting of financial assets and investments
FATCA
• Banks / Financial Institutions
• Annual Returns / Form 8938
• US based brokerage firms
Responsibilities of non-US Persons
1. US source income
• Dividends and interest – examples of FDAP
• Fixed, Determinable, ...
Responsibilities of non-US Persons continued
US Property Investment - Structuring of real estate holdings
• American LLC o...
Gift & Estate Taxes (Transfer Taxes)
Gift & Estate Taxes
Gift & Estate Taxes*
*Note – 2014 figures
US Tax & Estate Planning
US Estate Tax Overview - NCNR
What is considered US situs property for estate tax purposes?
• U.S. situs real property, in...
US Estate Tax Overview - NCNR
What is considered US situs property for estate tax purposes?
• Cash deposits with U.S. brok...
US Estate Tax Overview - NCNR
What is not considered US situs property for estate tax purposes?
• Bank accounts maintained...
US Estate Tax Overview - NCNR
Estates of NCNR individuals are subject to US estate tax only on US
situs assets.
• There is...
US Estate Tax Overview – US citizen
What is considered US property for US citizen?
• Everything owned by or in the name of...
Estate Planning – US citizen in Singapore
Can a Will be drafted for a US citizen living in Singapore?
• Depends upon type,...
Estate Planning – US citizen in Singapore
Can a Will be drafted for a US citizen living in Singapore?
• Depends upon type,...
Estate Planning – US citizen in Singapore
Can a Will be drafted for a US citizen living in Singapore?
• One size does not ...
Estate Planning – Singapore Citizen, US Assets
US stocks in brokerage accounts such as E*Trade or Phillip Capital.
• Subje...
Estate Planning – Singapore Citizen, US Assets
US Real Estate
• Subject to US estate tax if over 60K USD.
• May be subject...
Estate Planning – Singapore Citizen, US Assets
US Real Estate Solutions
• Buy a life insurance policy to cover potential e...
Estate Planning – Singapore Citizen, US Assets
Math 101
Own name – kids living in home
Buy house in 2015 - Value 1MM, mort...
Estate Planning – Singapore Citizen, US Assets
Math 102
Own name – kids are living in house
Buy house in 2015 - Value 1MM,...
Estate Planning – SG Citizen, US Citizen
Effective transfer of assets to non-US spouse.
• Make sure there is a will.
• Do ...
Estate Planning
Practical Tips
If a US person passes away:
• Request multiple copies of death certificate. Depending on the number of acco...
Practical Tips
Know your client!
• If non-US spouse
• has English language barriers
• has young kids
• is elderly or has h...
Practical Tips
• Clients should review their estate documents at least every five years or when
an event happens. (Move, m...
Other tax considerations
States and Trusts
No State Estate Taxes
State Estate Taxes
State Inheritance Taxes
Trusts
Foreign (Non U.S.) Trusts
Advantages –
• Statutory Protection from Creditors
• U.S. Judgments not Recognized
• Confidentia...
Thank you!
Questions?
Derren Hayden Joseph
+65 9720 1040
Derren@htjosephcpa.com
Ann Marie Regal, CFP®
+65 9146 1862
amrega...
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Aspects of Estate Planning for Persons with US Connections

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Aspects of Estate Planning for Persons with US Connections

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Aspects of Estate Planning for Persons with US Connections

  1. 1. Aspects of Estate Planning for Persons with US Connections Derren Hayden Joseph - Hayden T Joseph CPA LLP Ann Marie Regal CFP®, Wealth Manager, Globaleye Pte Ltd July 31st 2015
  2. 2. • The information presented herein is for general purposes and has not taken into consideration any specific needs or objectives. • This document is not intended and should not be construed as an offer, solicitation or recommendation. • You are recommended to seek advice concerning the suitability of any estate plan regarding a US person or US property from a professional adviser. • This material is current as of the date specified and is for informational purposes only. It is not a solicitation, or an offer to buy or sell any security or investment product, nor does it consider individual investment objectives or financial situations. While the information contained herein is believed to be reliable, we cannot guarantee its accuracy or completeness. IMPORTANT: This presentation is designed to provide general information about ideas and strategies. It is for discussion purposes only since the availability and effectiveness of any strategy are dependent upon your individual facts and circumstances. Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax, or estate planning strategy. This document or presentation is not intended or written to be used, and may not be used, for the purpose of avoiding penalties that may be imposed on the taxpayer. Disclaimer
  3. 3. Introduction
  4. 4. Taxes
  5. 5. US Taxes There are three main types of taxes in the US. • Income tax – all sources of income are taxable at various rates. ie – salary, rental, dividend, capital gains and interest. • Gift tax - • US to non-US annually without reporting – 147K • US to US annually without reporting – 14K • Non-US to US – US reports amounts over 100K on IRS Form 3520
  6. 6. US Taxes There are three main types of taxes in the US. • Estate tax – • US to US spouse - unlimited marital exclusion • US to US person - 5.43MM limit for 2015 • US to non-US spouse – 5.43MM limit for 2015, over if in a QDOT (Qualified Domestic Trust) • Non-US to US – no limits • Non-US to non-US – 60K exemption for assets in the US Estate tax & Gift tax are unified. A US person has 5.43MM which can be used during lifetime or at death.
  7. 7. Income Taxes
  8. 8. Responsibilities of US Persons • Who are US persons • Worldwide Taxation • Reporting of financial assets and investments
  9. 9. FATCA • Banks / Financial Institutions • Annual Returns / Form 8938 • US based brokerage firms
  10. 10. Responsibilities of non-US Persons 1. US source income • Dividends and interest – examples of FDAP • Fixed, Determinable, Annual, or Periodical (FDAP) income is all income, except: • Gains derived from the sale of real or personal property • Items of income excluded from gross income, without regard to the U.S. or foreign status of the owner of the income, such as tax-exempt municipal bond interest and qualified scholarship income • 30% withholding • Capital Gains – tax free except for • ECI, certain natural resources, real estate or patents • Substantial presence
  11. 11. Responsibilities of non-US Persons continued US Property Investment - Structuring of real estate holdings • American LLC or an American LLC fully owned by foreign / SG private limited • Depends on whether you’re investor vs an owner occupier • Advantages – • The shield of limited liability in an increasingly litigious society • Many commercial lenders prefer LLCs • Owning real estate through an LLC can offer real estate investors far better asset protection from creditors than they would have if they owned real estate in their own name • Potentially avoid FIRPTA ("Foreign Investment in Real Property Tax Act“) • Protect identity of non American owners • Potentially avoid estate and gift taxes • Once the property is sold, the U.S. corporation can be liquidated and the cash repatriated to the foreign corporation without any U.S.-level withholding tax (which holds true in the case of a foreign corporation terminating its U.S. operations, as well, and distributing the proceeds). • Disadvantage – higher compliance costs (incorp, filings, record keeping etc)
  12. 12. Gift & Estate Taxes (Transfer Taxes)
  13. 13. Gift & Estate Taxes
  14. 14. Gift & Estate Taxes* *Note – 2014 figures
  15. 15. US Tax & Estate Planning
  16. 16. US Estate Tax Overview - NCNR What is considered US situs property for estate tax purposes? • U.S. situs real property, including houses and condominiums. • U.S. situs tangible personal property, such as jewelry, antiques, artworks and cars, unless the items are in transit or on loan for an exhibition. • Shares of stock of U.S. corporations, including shares of a U.S. co-operative corporation representing a co-op apartment. The location of the certificate is immaterial. • Mutual funds (including money market funds) organized in corporate form are U.S. situs property if incorporated in the United States. If the fund is structured as a partnership or grantor trust, the situs of the fund depends on the situs of the underlying assets of the fund. • REITS
  17. 17. US Estate Tax Overview - NCNR What is considered US situs property for estate tax purposes? • Cash deposits with U.S. brokers, money market accounts with U.S. mutual funds and cash in U.S. safe deposit boxes are U.S. situs property • Debts of U.S. obligors. • Interests in limited or general partnerships that either do business in the U.S. or own assets in the U.S. will probably be considered U.S. situs assets. • Life insurance proceeds paid by a U.S. insurer on the life of someone else. • Cash surrender value of life insurance owned by a non-U.S. person on the life of another person is U.S. situs property if issued by a U.S. insurer. • Annuities
  18. 18. US Estate Tax Overview - NCNR What is not considered US situs property for estate tax purposes? • Bank accounts maintained with U.S. banks: this includes checking and savings accounts, time deposits and certificates of deposit. • Life insurance proceeds paid by a U.S. insurer on the life of the insured non-U.S. person. • ADRs – American Depository Receipts (shares of non-US companies that trade on US stock exchanges.) • Publicly traded bonds issued after July 18, 1984 qualify as “portfolio debt” and therefore are not subject to U.S. estate taxation.
  19. 19. US Estate Tax Overview - NCNR Estates of NCNR individuals are subject to US estate tax only on US situs assets. • There is no tax treaty between the US & Singapore. • The tax is assessed at the same rates as for U.S. citizens (up to 40%) but with only a $60,000 exemption. • Unlimited marital deduction for estate of NCNR who leaves US situs property to US citizen spouse.
  20. 20. US Estate Tax Overview – US citizen What is considered US property for US citizen? • Everything owned by or in the name of a US person world wide. • Joint property owned by US/non-US – may deemed to be property of US citizen unless proof that spouse contributed financially.
  21. 21. Estate Planning – US citizen in Singapore Can a Will be drafted for a US citizen living in Singapore? • Depends upon type, amount and location of assets. • Qualified accounts – ie US 401K, IRA & Roth IRA and certain types of pensions can be left to NCNR spouse via a beneficiary designation (will substitute.) • Life insurance - beneficiary designation. • Real estate owned in Singapore. • Singapore bank accounts.
  22. 22. Estate Planning – US citizen in Singapore Can a Will be drafted for a US citizen living in Singapore? • Depends upon type, amount and location of worldwide assets. • US real estate owned in personal name – falls under state specific rules & residency rules. Need either a US will done for that state or International Will drawn up by US attorney. A Singapore will may not be recognized in the state so would pass via intestacy laws. • US bank accounts & non-retirement investment accounts – Singapore will is sufficient but the estate will go through probate.
  23. 23. Estate Planning – US citizen in Singapore Can a Will be drafted for a US citizen living in Singapore? • One size does not fit all. • There is no simple answer. • When in doubt, ask a US professional. • Make no assumptions. The US has very complex rules on a Federal & State level which change annually. One mistake could be very costly for your clients & you. Americans are notoriously litigious.
  24. 24. Estate Planning – Singapore Citizen, US Assets US stocks in brokerage accounts such as E*Trade or Phillip Capital. • Subject to US estate tax if over 60K USD. • Location of account is irrelevant, it is the where the company/fund is incorporated/registered. Solutions - • Own stocks in an offshore corporate account. Corporations do not pay estate tax. • Hold assets in a US revocable trust to eliminate probate, estate tax still due but transfer of assets is easier. • Life insurance to cover estate taxes. How do I ensure my portfolio passes to my son in a timely and tax-efficient way when I pass away?
  25. 25. Estate Planning – Singapore Citizen, US Assets US Real Estate • Subject to US estate tax if over 60K USD. • May be subject to state estate/inheritance tax. 15 states & Washington DC have estate tax, 5 states have inheritance tax. • Some states are Community Property, others are Common Law. • Rule of thumb – NEVER write a will for anyone who owns US real estate in their own name. You need a US lawyer with state specific knowledge. I plan to buy a home in California for my children to live in while they study there. Should I own the home in my name, their names or otherwise.
  26. 26. Estate Planning – Singapore Citizen, US Assets US Real Estate Solutions • Buy a life insurance policy to cover potential estate taxes. • Own in a US revocable trust. • Qualified Personal Residence Trust (QPRT) • Own house in an onshore or offshore corporate/trust structure. • Expensive to operate annually 5-7K. • Can run afoul of IRS “disregarded entity rules”. • Best for ultra-high net worth individuals or expensive properties. I plan to buy a home in California for my children to live in while they study there. Should I own the home in my name, their names or otherwise.
  27. 27. Estate Planning – Singapore Citizen, US Assets Math 101 Own name – kids living in home Buy house in 2015 - Value 1MM, mortgage 500K. Die in 2020 – Value 1.3, mortgage 350K Value of estate – 950K (1.3 – 350K) Worst case scenario estate taxes due – 950K-60K=890K * 40% = 356K Upon death, the beneficiary receives the stepped up cost basis so no capital gains tax. Life insurance 1MM – annual premiums healthy 50 yr old on 15 yr term, about 1,500 USD Estate is protected for 7,500 USD Life insurance is cheap in the US, expensive in Singapore (except if smoker.) I plan to buy a home in California for my children to live in while they study there. Should I own the home in my name, their names or otherwise.
  28. 28. Estate Planning – Singapore Citizen, US Assets Math 102 Own name – kids are living in house Buy house in 2015 - Value 1MM, mortgage 500K. Sell 2020– Value 1.3, mortgage 350K Capital gains tax calc: 1.3MM – 1MM – expenses related to sale 70K = 230K 230K * 15% = $34,500 Offshore structure would cost about the same amount over the five years, with more paperwork and potential IRS scrutiny. I plan to buy a home in California for my children to live in while they study there. Should I own the home in my name, their names or otherwise.
  29. 29. Estate Planning – SG Citizen, US Citizen Effective transfer of assets to non-US spouse. • Make sure there is a will. • Do not have multiple wills unless absolutely necessary. (ie Malaysia for real property) • Utilize beneficiary designations on qualified accounts, pensions, life insurance. • Title assets jointly or with TOD designation. • Consider US revocable trust for US situs assets. • US Qualified Domestic Trust (QDOT) for estates over 5.43MM. I am an SG citizen married to a US citizen. How can I receive my US spouse’s assets efficiently upon his passing?
  30. 30. Estate Planning
  31. 31. Practical Tips If a US person passes away: • Request multiple copies of death certificate. Depending on the number of accounts, up to 24. • Do not have to tell the Embassy but may want to, especially if descendant was registered with Embassy. • Estate tax return is due nine months after the date of death. A six month extension is available if requested prior to the due date and the estimated correct amount of tax is paid before the due date.
  32. 32. Practical Tips Know your client! • If non-US spouse • has English language barriers • has young kids • is elderly or has health issues • has financial or time limitations, then - You do not want to subject them to US probate. A SG will has to go through probate, so does a US will. Consider US trusts for US assets or beneficiary/joint ownership designations. • Fully understand what their future plans may be. Are they considering retirement in the US for example. Will they never ever live in the US? • Do not lock your client into a complex solution that is hard & expensive to unwind unless there are significant benefits.
  33. 33. Practical Tips • Clients should review their estate documents at least every five years or when an event happens. (Move, marriage, divorce, birth of children, etc.) • Clients should have a list of all accounts, insurances, passwords, names & contact info for advisors. • Location of safety deposit key and will should known by trusted friend/family/advisor.
  34. 34. Other tax considerations States and Trusts
  35. 35. No State Estate Taxes
  36. 36. State Estate Taxes
  37. 37. State Inheritance Taxes
  38. 38. Trusts
  39. 39. Foreign (Non U.S.) Trusts Advantages – • Statutory Protection from Creditors • U.S. Judgments not Recognized • Confidentiality • Will Substitute Disadvantages – • Reporting Requirements • U.S. Court Perception/Contempt • Foreign Trustee Concerns • Section 684
  40. 40. Thank you! Questions? Derren Hayden Joseph +65 9720 1040 Derren@htjosephcpa.com Ann Marie Regal, CFP® +65 9146 1862 amregal@globaleye.sg

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