If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
We’re assuming for the rest of this discussion that you’re a nonresident for estate tax purposes. This means that the estate tax will only be imposed on your “U.S. situs” assets–properly located in the United States
Direct ownership
Nothing says “U.S. situs asset” quite so much as direct ownership in U.S. real estate. If an individual dies while holding title to U.S. real estate, there will be U.S. estate taxation of that asset.
For U.S. law, real estate includes the land and all buildings and “fixtures.” If it is permanently attached to the land, it is real estate. A building is real estate. A sidewalk is real estate.
Stock of corporations
Look to the place of incorporation.
Stock of a corporation formed in the United States is situated in the United States. Stock of a corporation formed outside the United States is not situated in the United States.
Place of management, source of income, physical location of the stock certificate, etc. do not matter.
U.S. real estate inside foreign corporation
Stock of a foreign corporation is not a U.S. situs asset. Nonresident alien owns stock of a foreign corporation? Guess what—it does not matter what the foreign corporation owns.
Let’s say the nonresident alien owns the stock of a foreign corporation, which in turn owns U.S. real estate (clearly a U.S. situs asset). The nonresident falls over dead, owning a non-U.S. situs asset—stock of a foreign corporation. This passes to his heirs, free of estate tax.
California corporation owns real estate
Stock of a corporation formed under U.S. law is considered located inside the United States, making the stockholder vulnerable to estate tax when he or she dies.
A nonresident owns all of the stock of a California corporation. The California corporation owns U.S. real estate. The nonresident dies.
The decedent’s estate does not include ownership of real estate. His estate owns stock of a California corporation. The stock is a U.S. situs asset so the heirs will be estate tax on the fair market value of the stock.
Note the important distinction–the estate tax is not imposed on the real estate itself, but on the stock of the U.S. corporation (in this case I assumed California, but any other State will do).
If you enjoyed this post, make sure you subscribe to my RSS feed!
{ 0 comments… add one now }