Reports from Heckerling 2017: International Recent Developments
January 18, 2017
By Jack Meola, CPA
Continuing with our reports from the 2017 Heckerling Institute on Estate Planning
Scott A. Bowman (Proskauer Rose LLP), M. Read Moore (McDermott Will & Emery LLP) and Dina Kapur Sanna (Day Pitney LLP) discussed recent developments and focused on sweeping trends in global tax transparency.
One such trend focused on the international client who is a nonresident alien (NRA) and is looking to purchase U.S. real estate. These individuals will need to consider many factors if they are contemplating a real estate acquisition. Many NRAs want to remain as nonresident aliens without being subject to U.S. income taxes on their worldwide income. In the recent past, we would consider the following items when making a choice of establishing the structure we would propose. They are as follows (not an exclusive list):
- The capital gains tax rate.
- Whether step-up in basis was important.
- Whether the client wants to be subject to U.S. estate taxes.
- Whether the jurisdiction to which the NRA resides recognizes trusts.
- Whether the property would be rented.
- How long the NRA wanted to “own” the property or would it be sold? If sold, would there be a replacement property?
- What is the overall net worth of the client?
- Does the foreign country have controlled foreign corporation (CFC) rules that apply?
- Which of the above is the most critical consideration regarding the purchase for the client?
Although this has always been a complex task it has now become even more so since there is a Trump proposal of eliminating federal estate taxes. Furthermore, notwithstanding that the federal estate taxes may be eliminated, should the NRA consider the possibility that an estate tax may be reinstated sometime in the future, presumably after there is a change of administration? Advisors also should consider that many other jurisdictions will likely keep their estate taxes based upon their need for revenues. Most states piggybacked their estate taxes based upon the federal estate taxes with selected differences for the treatment of various items. What will these states do if there is no federal estate tax? NRAs making real estate purchases will undoubtedly continue and advising them will undoubtedly continue to be more complex.
The lesson learned from this session is the need for flexibility and the realization that nothing in taxes is permanent.
For more content stemming from the 2017 Heckerling Institute on Estate Planning, please click here.
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