14 07-09 orange county bar association - int'l estate planning

LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
SUITE 445
12100 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90025
www.GivnerKaye.com
www.MajorTaxProblems.com
BRUCE GIVNER
(bruce@GivnerKaye.com)
OWEN D. KAYE
(owen@GivnerKaye.com)
KATHLEEN GIVNER
(kathy@GivnerKaye.com)
NEDA BARKHORDAR
(neda@GivnerKaye.com)
PHONE (310) 207-8008
(818) 785-7579
FAX (310) 207-8708
(818) 785-3027
July 9, 2014
Orange County Bar Association
Trusts & Estates Law Section
International Estate Planning:
How To (i) Know Enough To Bring The Matter In And (ii) Figure It Out Once You Get It
Typical Client Situations
1. U.S. Person With Real Estate In Multiple Countries.
Dirk and Katja are U.S. residents and German citizens in their 40s with 3 young
children. Dirk owns a ranch in Argentina ($10,000,000), commercial property in Germany
($5,000,000) and a 3 acre estate in Malibu ($10,000,000). They have been filing FBARs for
their accounts in Switzerland, Germany and Argentina, and 5471s for the German
Gesellschaft mit beschränkter Haftung (GmbH). However, they have not paid much in U.S.
tax due to the foreign tax credit.
Should Dirk and Katja hire lawyers in Germany, Argentina and the U.S. to do parallel
estate plans?1
Or should they have the entities in Germany and Argentina (S.R.L. –
Sociedad de Responsabilidad Limitada) owned by LLCs which are, in turn, owned by a U.S.
revocable trust? Are the corporate entities set up for the purpose of owning foreign real
estate CFCs or PFICs?2
If they buy a residence in Germany, should they own it through a
German corporation?3
1
Advantages: (i) estate plans can be administered in each country simultaneously instead of possibly having to
wait for one to be completed and then later sent to the other countries; (ii) each is drafted under the laws of its
own country which ensures that each document is valid (complies with the formalities) in that country; and (iii)
each has been drafted to comply with the tax laws in that country.
2
The rules governing these entities are “anti-deferral” regimes and are intended to prevent U.S. taxpayers from
using foreign corporations to defer income taxes. Once an entity is classified as either a CFC or a PFIC,
onerous tax consequences follow, including complex reporting. A foreign corporation is a CFC when U.S.
shareholders control more than 50% of its share value or voting power. If a U.S. shareholder controls less than
50%, it may be a PFIC if one of the following applies: i) More than 75% of its gross income is “passive”; ii) More
than 50% of the value of its assets are held for the production of “passive income”. Passive income generally
includes capital gains, rent, interest, dividends and royalties. Certain gains will be taxed to the US shareholder
as ordinary income. Depending on which regime applies, amounts can be taxed to the U.S. shareholder at up to
39.6% (plus 3.8% Medicare), vs. as long-term capital gains. Often these rules will apply, directly or indirectly, to
gains on sale of any real property and to any rental income that is not determined to be earned in the “active
conduct of a trade or business,” an unpredictable classification. For a PFIC, additional taxes and compound
interest charges apply if PFIC stock is sold or shareholders receive a an “excess distribution.” While some of
these consequences can be avoided by electing to treat a PFIC as a “qualified electing fund” (QEF), this carries
additional accounting and reporting requirements and is not always feasible.
3
Owning it through a corporation eliminates the availability of §121 ($250,000 exclusion). By checking the box
on Form 8832 – Entity Classification Election - a corporation with a single owner can be treated as a Foreign
Disregarded Entity (FDE) for U.S. income tax purposes. The benefit of limited liability is not affected but it

LAW OFFICES
GIVNER& KAYE
International Estate Planning
July 9, 2014
Page 2 of 16
2. U.S. Person With Relatives In Other Countries.
Igor and Galina have been living in the U.S. for a decade and recently received their
U.S. citizenship. Both have Ph.D. in chemistry. They have two small children and a 50%
interest in a supplement manufacturing and marketing business. Galina’s mother, Alexandra,
is a wealthy, well-known woman of Russian heritage now living in Turkey. Alexandra wants
to invest $5,000,000 of liquid assets in the United States. She is willing to do so as a gift to
her grandchildren with Galina as the trustee.
3. U.S. Citizen Abroad.
Dr. and Mrs. Jerry Lincoln were married for 50 years and lived in Los Angeles. Mrs.
Lincoln was a dual U.S. – German citizen. She inherited an ancestral home in Bonn,
Germany. On her death the couple had 3 children; a $1,000,000 home in Los Angeles;
$1,000,000 in retirement accounts; $2,000,000 in liquid assets. Mrs. Lincoln had €1,000,000
in separate property liquid assets in Germany along with the €1,000,000 residence. Her
German Will (Testament) named her husband as her sole heir (meinem alleinigen erben).
However, his children hired a lawyer in Germany and sued Dr. Lincoln in the Nachlassgericht
for their Pflichtteilsrecht.4
German law provides that the children are entitled, as a payment
from Dr. Lincoln,5
of one-half of their inheritance right as a Pflichtteil, Since they would have
received 75%, their Pflichtteil is 37.5%. Dr. Lincoln and his children settle, before trial, for
€345,000, which the children disclaim to their own children.
What happens when Dr. Lincoln dies in Germany? There is no “estate tax.” German
inheritance tax (per beneficiary basis) (“Erbschaftsteuer”) allows a €400,000 exemption for
children and grandchildren. Germany recognizes jurisdiction by the person’s country of
citizenship over movable assets. If there is a dual U.S. – German citizenship, the other
citizenship is ignored. For real property, Germany exercises jurisdiction and the U.S. law
agrees. The tie-breaker rules in the 1980 U.S. – Germany Treaty go to the country of the
avoids CFC and PFIC status. Married couples must list a company in only one of their names, or can form two
corporations with each corporation owning 50% of a property. Also, the Form 8832 election must generally be
made within 75 days of the incorporation. Once the election is made to treat a company as an FDE, the
shareholders must file Form 8858 – Information of U.S. Persons With Respect To Foreign Disregarded Entities.
4
Compare Article 17(5) of United Arab Emirates Federal Law No. 2 of 1987: “The law of the United Arab
Emirates shall apply to wills made by aliens disposing of real property in the State.” This potentially allows UAE
Sharia law to take precedence over a person’s will, as a result of which only one-third of an estate may be
allocated as the owner sees fit. Compare the reserved portion for certain claimants under Japanese law.
Compare the forced heirship rules
5
Estates (Nachlass) do not exist under German law. Heirs (”Erbe”) step directly into the shoes of a German
decedent at the moment of death without any interposition of a fiduciary, personal representative, etc.
Therefore, an executor may be named but is unnecessary. There is no such thing as a German Trust. There is
no rule of per stirpes under German law. The concept of undue influence and contestability of a Will is unknown
under German Probate and Estate law. So, for example, bequests to the drafting attorney and caregivers are
permitted. There is no tax in any of the 16 German states (Bundeslander).

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July 9, 2014
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decedent’s last “residence” (Wohnsitz), in case of two or more “residences” to his “permanent
home” (“ständige Wohnstätte”), in case of two or more “permanent homes” to the country of
his last “center of vital interests” (“Mittelpunkt der Lebensinteressen”), then to the country of
his or her last “habitual abode” (“gewöhnlicher Aufenthalt”), then to the country of his last
“citizenship” (“Staatsbürgerschaft”), and finally and in the event that the individual at the
moment of death had been a citizen of both the U.S. and Germany or of neither of them, as a
matter of last resort, the U.S. government and the German government will have to settle the
question by means of mutual agreement (“Verständigungsverfahren”).
Austria, Denmark, France, Netherlands, U.K. and German treaties: tie-breaker rules.
Australia, Finland, Greece, Ireland, Japan, Norway, South Africa and Switzerland treaties:
domicile is left to the laws of each country. All other countries: no treaties.
4. Non-U.S. Persons With Real Estate In The U.S.
Woojin (William) and Yun-seo (Jennifer) Lee are Brazilian citizens in their 60s with
children in Brazil and investment real property in Korea, Brazil and the U.S. They currently
own their 3 California industrial properties (worth $20,000,000) through Nevada LLCs. What
is the best way for them to own the industrial properties in the U.S.? Is the answer different if
their only interest is buying a condo for their daughter while she is studying at U.C.L.A.?
Issues
1. Residency For Income Tax Purposes.6
Roman (speaks broken English), Alexandra (only speaks Russian) and son Eugene
(fluent in both English and Russian) come to your office in February, 2014, for a consultation.
They lived in the U.S. for more than 183 days from 2011 – 2013. They have an unprofitable
business in the U.S. In 2012 and 2013 they had large income as to their non-U.S.
businesses. They do not have Green Cards. They have B-2 Medical Treatment visas. Mom
has been trying in vitro fertilization and has had an extremely difficult time.
§7701(b) Definition of resident alien and nonresident alien
(1) In general
For purposes of this title (other than subtitle B)—
(A) Resident alien
An alien individual shall be treated as a resident of the United States as to any calendar year if
(and only if) the individual meets the requirements of clause (i), (ii), or (iii):
(i) Lawfully admitted for permanent residence. Such individual is a lawful
permanent resident of the United States at any time during such calendar year.
6
Subject to U.S. income tax: (i) U.S. citizen; (ii) U.S. resident; (iii) NRA with U.S. source income or ECI. How do
you determine citizenship? (i) Birth within the U.S. (ii) Birth outside the U.S. to at least one U.S. parent (subject
to certain additional requirements depending on D.O.B.) (iii) Naturalization. Important to ask clients about their
citizenship and that of family members.

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July 9, 2014
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(ii) Substantial presence test. Such individual meets the substantial presence
test of ¶(3).
(iii) First year election. Such individual makes the election provided in ¶(4).7
(B) Nonresident alien
An individual is a nonresident alien if such individual is neither a citizen…nor a resident of the
United States (within the meaning of subparagraph (A)).
…
(3) Substantial presence test
(A) In general
Except as otherwise provided in this paragraph, an individual meets the substantial presence test
of this paragraph as to any calendar year (“current year”) if—
(i) the individual was present in the U.S. on at least 31 days during the
calendar year, and
(ii) the sum of the number of days on which such individual was present in the
U.S. during the current year and the 2 preceding calendar years (when multiplied by the applicable
multiplier determined under the following table) equals or exceeds 183 days:
The applicable
In the case of days in: multiplier is:
Current year 1
1st preceding year 1/3
2nd preceding year 1/6
(B) Exception where individual is present in the U.S. during less than one-half of
current year and closer connection to foreign country is established
An individual shall not be treated as meeting the substantial presence test of this paragraph as to
any current year if—
(i) the individual is present in the U.S. on fewer than 183 days during the
current year, and
(ii) it is established that for the current year the individual has a tax home (as
defined in §911(d)(3)8
without regard to the second sentence thereof) in a foreign country and has a closer
connection to such foreign country than to the United States.
…
(D) Exception for exempt individuals or for certain medical conditions
An individual shall not be treated as being present in the United States on any day if—
(i) the individual is an exempt individual for such day, or
7
There is also an election under §6013(g) for an NRA married to a U.S. citizen or resident.
8
§911(d)(3): “The term `tax home’ means, as to any individual the individual’s home for purposes of §162(a)(2)
(relating to traveling expenses while away from home). An individual shall not be treated as having a tax home
in a foreign country for any period for which his abode in within the U.S.” BNA Portfolio 519-2nd
II.C has an
extensive discussion of the many issues involving “tax home.” One sentence from it is as follows: “The IRS,
with the support of the Tax Court, has consistently taken the position that the term `home’ as used in §162(a)(2)
means the taxpayer's principal place of business, rather than abode or residence.” Rev. Rul. 75-432.

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July 9, 2014
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(ii) the individual was unable to leave the U.S. on such day due to a medical
condition which arose while the individual was present in the U.S.
2. Residency For Transfer Tax Purposes.9
2.1. No Statutory Definition.
Assume you are able to conclude that Roman and Alexandra are not U.S. residents for
income tax purposes. They own a $4,000,000 commercial property occupied by their U.S.
business and a $2,500,000 home in Venice, California. Alexandra dies.
Code does not define “resident” and “nonresident” for transfer tax purposes. For
income tax purposes it is objective. For transfer tax purposes it is subjective. Regulations
define by reference to “domicile.” As under state law there is an element of physical
presence (domestic as opposed to recreational habitation “for even a brief period of time”)
and intent. Reg. §20.0-1(b)(1); 25.2501-1(b). A domicile once acquired is presumed to
continue until it is shown to have changed. Unless the facts show that a foreign-born
individual changed his domicile, with physical presence and intent, to the U.S. or elsewhere,
his domicile will remain in the country of birth. Similarly, once U.S. domicile is established, it
will remain so until it is shown to have changed. You can have U.S. domicile without domicile
in a particular state.
2.2. Factors.
Weighing the factors: (i) Visas, Work Permits and Similar Official Documents. But
Green Card is not determinative. In Jack Est. ex rel. Blair v. U.S., 54 Fed. Cl. 590 (2002), the
court allowed the IRS to argue that a professor with a TN10
visa had changed his intent and
became a permanent U.S. resident in violation of his visa. See also Estate of Nienhuys, 17
T.C. 1149 (1952). (ii) Number and Location of Business and Property Interests. (iii) Family
Immigration History. (iv) Residential Property Comparisons. (v) Testimony and Statements
of the Individual. Fishing and hunting licenses. (vi) Motives. (vii) Travel and Duration of
Stays in the U.S. (viii) Community Affairs and Group Affiliations. Particularly for the devout.
2.3. Problems With Visas.
Example. The G-4 visa is nonimmigrant visa which allows foreign officers or
employees of international organizations of any rank to enter into the U.S. to engage in
business activities and not for personal business and pleasure. The staff and immediate
family members of principal G-4 visa holders also qualify for G-4 visa. This visa holder may
stay in the U.S. indefinitely as long as the Secretary of State continues to recognize the G-4
status. There is no requirement that the applicant must have a foreign residence to which he
9
Subject to transfer taxes on gratuitous transfers if (i) U.S. citizen; (ii) U.S. domiciliary; or (iii) NRA with certain
U.S. situs assets.
10
Nonimmigrant NAFTA professional.

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July 9, 2014
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or she intends to return. G-4 visa holders may, depending upon their particular situation, be
deemed as either domiciled in the U.S. or as non-resident, non-citizens.
3. Estate Tax.
3.1. General Rules. NRA’s gross estate = U.S. situs assets. §2103. U.S. real
property and stock in a U.S. corporation included. Uncertain treatment of partnership
interests. IRS position is that a multiple person partnership has U.S. situs. Debt issued by a
U.S. borrower. Cash in U.S. banks is generally not a U.S. situs asset. Cash in a U.S.
brokerage account may be a U.S. situs asset. Exemption of ≈ $60,000. Unlimited marital
deduction for a U.S. citizen spouse. Tangible personal property rule: §20.2104-1(a)(2):
“Tangible personal property located in the U.S., except certain works of art on loan for
exhibition…).” (a)(4): “intangible personal property the written evidence of which is not
treated as being the property itself, if it is issued by or enforceable against a resident of the
U.S. or a domestic corporation or governmental unit.” (a)(7): “In the case of an estate of a
decedent dying on or after November 14, 1966…any debt obligation, including a bank
deposit, the primary obligor of which is…a U.S. person….”11
(a)(8): “…deposits with a branch
in the U.S. of a foreign corporation, if the branch is engaged in the commercial banking
business, whether or not the decedent was engaged in business in the U.S. at the time of his
death.” General rule (sort of): property whose physical embodiment is merely evidence of the
property right is property situated in the U.S. only if it is enforceable against a U.S. person.
3.2. Uncertainty. U.S. partnership with or without U.S. assets and activities.
Mobilia sequunter personam?12
Beneficial interests in trusts and estates; IRS view is Rev.
Rul. 55-163 (trust as look-through). Stock options (presumably where the issuer is located).
Retirement plans (debt obligations so where retiree resides). Commercial annuities. IP.
3.3. Planning. Contribute U.S. or questionable situs assets to a foreign corporation.
FIRPTA issues if real property involved. ECI or §367 if U.S. trade or business is involved.
Argue that the decedent was a U.S. domiciliary if no treaty and assets are mostly U.S. situs.
4. Gift Tax.
4.1. General Rules. Real and tangible personal property situated in the U.S. Debt
obligations of a U.S. person. Unlike estate tax, NRA is not taxed on gift of stock in U.S. or
foreign corporation. Gift of a partnership or LLC interest is probably not subject to gift tax but
less clear than a gift of stock. Not intangible property. No unified credit. Annual exclusion
and GST exclusion allowed. No gift splitting. Charitable deduction allowed for U.S. charities
or trust using U.S. assets. No lifetime QDOT and expanded marital annual exclusion
($145,000 in 2014).
11
Exception to debt obligation rule: deposits and CDs with a U.S. bank; deposits with a foreign branch of a U.S.
bank; deposits in a U.S. branch of a foreign bank; certain OID; portfolio debt.
12
Chattels follow the person. Blodgett v. Silverman, 277 U.S. 1 (1928).

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4.2. Planning. Better to give U.S. intangibles during life because included in NRA’s
estate at death.
5. Parallel vs. Multiple Estate Plans.
5.1. Trusts In Other Countries.
Frederic William Maitland, the renowned historian of English law, called the trust “the
greatest and most distinctive achievement performed by Englishmen in the field of
jurisprudence.”13
Trust-like devices appear in other legal systems, e.g., the Roman
fideicommissum, the German Treuhand, the Japanese Shintaku14
and the Islamic wagf.
However, none of them is precisely the same as the common-law trust.
5.2. United Kingdom.
U.S. citizen husband and U.K. citizen and resident spouse. Transfer of U.S. residence
to California family trust. Does the transfer trigger the U.K. Inheritance tax? That tax has a
£325,000 in 2014 to 2015 threshold, but then is 40%. HMRC might argue that the inheritance
tax was triggered on the creation of the trust and every 10th
anniversary.
http://www.hmrc.gov.uk/inheritancetax/paying-iht/payment-deadlines.htm.
5.3. Spain.
Regarding the validity and recognition in Spain of the provisions of wills granted
abroad, the applicable law is the Hague Convention of 1961, on the Conflicts of Laws relating
to the Form of Testamentary Dispositions. The Hague Convention of 1961 provides that (i)
its rule is of erga omnes scope;15
(ii) Spain is a contracting state; and (iii) Spain is governed
by the principle of the favor testamenti,16
whereby the will is formally valid if it meets the
formal conditions of any of the national laws established under the convention.
5.4. Japan.
Inheritance tax is levied at progressive rates on the FMV of property less funeral
expenses and taxes with deductions allowed based on the heir’s status: 10,000,000 yen
(roughly 100 to 1 exchange rate) for a statutory heir and 160,000,000 for the surviving
spouse. If a foreigner owns real property in Japan and is married to a Japanese person, the
laws of the foreigner’s country determine how the property passes; renvoi is permitted. If a
13
F.W.Maitland, The Unincorporated Body, in 3 THE COLLECTED PAPERS OF FREDERIC WILLIAM
MAITLAND 272 (H.A.L. Fisher ed. 1911).
14
Dates back to 1905 and based, in part, by Justice Ikeda on the California Civil Code model of trust law.
Primarily used, as is the case in many other countries, as vehicles for commercial dealings, e.g., as substitutes
for bank deposits or securities investments.
15
Owed towards all.
16
If there are doubts over a dispute will, it must be construed in a way as to remain valid.

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July 9, 2014
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foreigner owns property in Japan, it is advisable to make a local will. However, Japan
recognizes a will made in accordance with the law of the foreigner’s nationality.
5.5. HG.org.
6. Real Estate For Foreign Persons.
6.1. Income Tax Rules.
Individual. If U.S. real property income is ECI with a U.S. trade or business,
taxed on the net. §§871(b)(1) and 882(a)(1). Determining a trade or business. Treaties.17
If
a foreign person is uncertain about whether the activity rises to a U.S. trade or business, he
should elect to treat the income as ECI under §§871(d) and 882(d) (“net election”). In the
absence of the election if the activity is determined not to be a U.S. trade or business, the
foreign lessor will be subject to a 30% withholding on the gross rent, i.e., no depreciation.
Net is almost always better than 30% on the gross. Made at the partner level. 1040NR.
Corporation. In addition to being taxed on a net basis at regular rates, a
foreign corporation is subject to a branch profits tax at 30%. §884. U.S. tax is imposed on
the “dividend equivalent amount” whether cash is repatriated to the foreign country or not.
Most try to avoid this by not having a foreign corporation directly own U.S. real property.
Treaties often reduce the rate to the one due on actual dividends paid by a U.S. corporate
subsidiary to a foreign shareholder. 1120-F.
Withholding. A payor must withhold 30% of the gross of passive income paid
to a foreign person, e.g., rent, interest, dividends and other FDAP. §1441. For partnerships
see §1.1441-5(b)(2). Treaties can reduce (usually to 5% or 15%) or exempt payments from
withholding if the foreign person certifies entitlement to treaty benefits (typically on Form W-8
BEN); that usually does not apply to rents. Exceptions include OID, interest on bank deposits
and the portfolio interest exemption (§871(h), 881(c).
6.2. Gain From Sales.
Gain from the sale or exchange of a USRPI by a foreign person is taxed as if the
foreign seller were ETB and the gain were ECI with the trade or business. Therefore, the
foreign sellers of USRPIs are taxed at the same rates as U.S. sellers. FIRPTA does not
impact the gain’s character. Can 1031 U.S. real property for U.S. real property. A USRPHC
is a domestic corporation that holds USRPIs which exceed 50% of the FMV of all (i) USRPIs;
17
Treaty will likely provide that business profits can be taxed on a net basis as ECI only if the profits are due to
a “permanent establishment” in the U.S. If the foreign person does not have a PE, any U.S.-source income
earned is characterized as business profits (as opposed to passive-type income) would generally be exempt
even if it would otherwise constitute ECI with a U.S. trade or business. The PE provisions of most treaties
require a higher level of business activity before subjecting a foreign person to ECI tax on a net basis than the
rules that would apply in the absence of a treaty.

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July 9, 2014
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(ii) all non-U.S. RPIs; and (iii) all other trade or business assets. The buyer of a USRPI from
a foreign seller must withhold 10% of the gross. Note California Form 593’s 3.3%.
7. Expatriation.
Etienne is a dual U.S. – French citizen and his wife Susan is a U.S. citizen worth
$250,000,000. U.S. assets include a $25,000,000 home in Beverly Hills; $20,000,000 beach
home in Malibu; a $30,000,000 wine collection; $30,000,000 of U.S. investment real property;
and a $20,000,000 boat ($60,000,000 total basis). Their non-U.S. assets include
$25,000,000 of real estate in Hong Kong ($10,000,000 basis) and a stock on the Singapore
exchange worth $100,000,000 ($20,000,000 basis). Etienne’s businesses keep him outside
of the U.S. for most of the year. He feels that the stock on the Singapore exchange is going
to double over the next few years. He does not want to pay a California or U.S. capital gains
tax on that appreciation; nor does he want to pay a U.S. estate tax on his non-U.S. assets.
Can we dramatically reduce the otherwise applicable estate tax without expatriation?
Can we dramatically reduce the capital gain tax without expatriation?
What is the cost of expatriation? §877A mark-to-market.
Can the tax be deferred? If so, what is acceptable collateral?
8. Other Interesting Information and Issues.
8.1. More On Treaties.
Those who are citizens or residents of certain countries that are parties to bilateral gift
and/or estate tax treaties may enjoy indirect benefit from the “basic exclusion amount” for
transfers of property by or from U.S. citizens and domiciliaries: Australia; Canada (estate tax
only); Finland; France; Germany; Greece; Italy; Japan; and Norway. Credit for a portion of
the U.S. credit equal to the percentage that U.S. property belonging or passing to a foreign
person bears to all of the property that would be subject to U.S. tax were the foreign person a
U.S. domiciliary. So if the person from a treaty country dies in 2014 and his U.S. real estate
equals 50% of his worldwide gross estate, the exemption would be 50% of $5,320,000
instead of the $60,000 exemption otherwise applicable to foreign estates and beneficiaries.
When property passes to a surviving spouse who is not a U.S. citizen, the treaties with
France and Germany require the U.S. to allow an estate tax marital deduction equal to the
U.S. applicable exclusion amount without reduction for any exclusion applied to gifts. The
treaty with Canada allows a similar marital deduction but only equal to the proportionate
credit under the Treaty. So in the preceding example it would be $5,340,000 for a French or
German succession and 1/2 of $5,340,000 for a Canadian transfer. However, the heirs must
agree not to seek to qualify any excess assets under a QDOT.

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8.2. FBAR Protection.
Elliot Kajan’s questionnaire for CPAs to include in their tax organizers:
_____ I do not have signature authority over nor a beneficial interest in any foreign financial accounts.
_____ I have signature authority over or beneficial interest in a foreign financial account, but the
balance was never more than $10,000 and I reported the income from it on my tax returns.
_____ I have signature authority over a foreign financial account in the name of a business or trust,
with a balance of more than $10,000 and the business or trust has already reported the account
on Form 90-22.1 or FinCen 114 and any income from it was or will be included in the business
or trust’s tax returns.
_____ I have signature authority over or a beneficial interest in a foreign financial account that must be
reported.
8.3. 3520s and 3520As.
8.4. The Educated Client?
Ethics has been throughout. Here it is explicit.
Regular Income or Estate Tax. The potential client meets with Tax Attorney A
and asks “What is the impact of the business that I have back in the old country?” Based Tax
Attorney A’s response, the potential client says “Thank you” and doesn’t come back. The
potential client meets with Tax Attorney B who asks “Do you have any assets or businesses
outside the U.S.” And the potential client responds “No.”
Controlled Foreign Corporation. New client Ho Wang discloses to Tax
Attorney that he owns 100% of a U.S. corporation that has a $1,000,000 profit and 80% of a
Hong Kong corporation that has a $10,000,000 profit. Tax Attorney analyzes the facts (the
nature of the business operations) and determines that the Hong Kong corporation’s revenue
is Subpart F income.18
Mr. Wang then informs Tax Attorney that he is mistaken, that the
Hong Kong corporation is, in fact, owned by first cousin who is an NRA.
18
§952 defines Subpart F income as including (i) certain insurance income; (ii) foreign base company income;
(iii) international boycott income; (iv) the sum of the amounts of any illegal bribes, kickbacks or other payments
paid on behalf of the CFC; and (v) income derived from any foreign country for which §901(j) denies a foreign
tax credit for taxes paid to such country. Foreign base company income is the most important category and
includes (i) FPHCI; (ii) foreign base company sales income; (iii) foreign base company services income; and (iv)
foreign base company oil related income. §954(a). Foreign base company sales income consists of certain
income earned from the sale of property for use, consumption, or disposition outside of a CFC's country of
organization. §954(d)(1)(B). This category generally includes only sales income derived from products sold to
or on behalf of a related person, or income from products purchased from or on behalf of a related person.
§954(d)(1). This category of income does not include sales of property manufactured in the CFC's country of
organization, nor does it include income from property sold for use in such country, regardless of related person
involvement with the transactions. Reg. §1.954-(3)(A)(2), (3).

LAW OFFICES
GIVNER& KAYE
July 9, 2014
Page 11 of 16
8.5. Who Is The Client?
Ethics. The U.S. child or the foreign parent who is creating the U.S. trust or other
structure? The trustee of the trust created by the foreign grantor or the beneficiary of that
trust (if they are different)? This question actually comes up in regular estate planning where
mom and dad set up a children’s trust and name dad’s brother as trustee. In that situation do
you tell dad’s brother to retain counsel to explain his potential liability? Do you tell dad’s
brother to apply for an errors and omissions policy? (If the independent trustee is dad’s CPA,
the liability for acting as trustee may be covered by the CPA malpractice policy.)
8.6. Special Situation: U.S. Citizen With NRA Spouse.
Planning varies depending on the clients’ facts19
and on a country-by-country basis,
e.g., does the foreign country (i) have community property?20
(ii) have an estate tax treaty
with the U.S.?21
(iii) have an estate tax? (iv) recognize trusts? (v) subject investment
income and capital gains to income tax? Does the U.S. citizen spouse die first? If so, no
marital deduction for an outright bequest. Must rely on lifetime transfer tax exclusion and
QDOT. Or use outright bequest (so as not to irritate the survivor with having a U.S. trustee,
distribution restrictions and foreign trust reporting obligations unless U.S. trustees are a
majority), pay the tax, get a step-up in basis with surviving spouse’s freedom to act and save
U.S. capital gains tax and possibly estate tax on NRA’s later death.
EXHIBIT A PRUDENTIAL’S QUICK GUIDE
19
Net worth of each spouse. Country in which the NRA spouse expects to reside after the U.S. spouse’s death.
20
The U.S. spouse may be deemed to own half of the NRA’s assets in the foreign country.
21
A treaty may provide a special marital deduction rule under which the U.S. spouse’s estate can elect to
deduct the property that passes to the NRA spouse marital-deduction-qualifying form as if the NRA was a U.S.
citizen up to the amount of the lifetime exclusion. This is in addition to the applicable exclusion amount. See
Article 10, ¶6 of the U.S. – German Estate Tax Treaty (12/3/80, amended 12/14/98).

LAW OFFICES
GIVNER& KAYE
July 9, 2014
Page 12 of 16

LAW OFFICES
GIVNER& KAYE
July 9, 2014
Page 13 of 16
EXHIBIT B FORCED HEIRSHIP

LAW OFFICES
GIVNER& KAYE
July 9, 2014
Page 14 of 16

LAW OFFICES
GIVNER& KAYE
July 9, 2014
Page 15 of 16

LAW OFFICES
GIVNER& KAYE
July 9, 2014
Page 16 of 16

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14 07-09 orange county bar association - int'l estate planning