Estate and Gift Taxes
An estate is the total assets owned by a deceased person. Unlike Israel where the estates are not taxable, for U.S. tax purposes, estates of U.S. citizens and residents are taxable, even if they live abroad. Foreign investors (known as nonresident aliens) who own assets in the U.S. (for example, real estate property) are subject to estate tax as well. Before you panic, some exemptions do exist, and we are going to cover them in this section.
Usually, in countries where the estate is taxable, a gift tax also exists (to avoid simple tax planning of giving all your assets as a gift). In general, if you are a citizen or resident of the United States, you must file a gift tax return if you gave gifts to someone in a year totaling more than $15,000 (other than to your spouse).
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Estate tax for U.S. Citizens
The Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death. The fair market value of these items is used, not what you paid for them or what their values were when you acquired them. The total of all of these items is your "Gross Estate". The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.
Once you have accounted for the Gross Estate, certain deductions are allowed in arriving at your "Taxable Estate". To the taxable estate we have to add the value of lifetime taxable gifts. If this amount is less than the unified credit = $11,400,000 in 2019, $11,580,000 in 2020, and $11,700,000 in 2021, there is generally no estate tax. Third-generation inheritors may be subject to additional taxes.
Most relatively simple estates (cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections, or jointly held property) do not require the filing of an estate tax return. A filing is required for estates with combined gross assets and prior taxable gifts exceeding the unified credit amunt
Estate tax for Non-U.S. Person (For Example, Foreign Investor)
While U.S. person have an emempt amount of around $11.5 million on his estate, for nonresidents aliens the amounts much lower. If on date of death the value of the decedent’s U.S. assets exceeds $60,000, estate tax will imposed.
Gift Tax
The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. In general, you must file a gift tax return if you gave gifts to someone in a year totaling more than $15,000 (other than to your spouse). All of the gifts made during the calendar year to a donee are fully excluded under the annual exclusion if they are all gifts of present interest and they total $15,000 or less. For gifts made to spouses who are not U.S. citizens, the annual exclusion has been increased to $155,000, under certain conditions.
A U.S. person has to file Form 3520 to report gifts from certain foreign persons:
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More than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) that you treated as gifts or bequests.
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More than $16,388 from foreign corporations or foreign partnerships (including foreign persons related to such foreign corporations or foreign partnerships) that you treated as gifts.
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