Impact of US Tax Reform on Cross-Border Estate Planning

The massive tax reform of 2017 temporarily increased the gift and estate tax exemption, which will revert to its previous limit of $5.49 million in December of 2025. Transfer taxes (gift, estate, and generation-skipping transfer taxes) are now twice what they were for United States citizens and those that are domiciled in the states, and allows high net worth individuals within those guidelines to transfer assets to family members and trusts tax free.

Non-U.S. decedents with U.S. situs assets continue to have an exemption of only $60,000 from the U.S. estate tax and a small per-donee annual exclusion from the gift tax, currently $15,000 per donee per year. The act also left in place the special succession tax applicable to “covered expatriates,” former U.S. citizens and green card holders, to current U.S. citizens.

The act also significantly reduces the U.S. corporate income tax rate to 21%, down 35%. Now non-United States citizens can hold real estate within the country through a foreign corporation and not feel the brunt of corporate taxation so harshly. The legisation makes a number of changes to the controlled foreign corporation (CFC) regime. Historically, this regime has required certain U.S. shareholders of foreign corporations to pay tax on passive income that the corporation earns, whether or not the corporation makes distributions.

See Amy E. Heller & Erin M. Fischer, Impact of US Tax Reform on Cross-Border Estate Planning, Skadden.com, June 19, 2018.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.