Tax question - Non-US citizen parent wants to gift wealth

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Faisal
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Tax question - Non-US citizen parent wants to gift wealth

Post by Faisal » Sat Jun 10, 2017 8:47 pm

I have a green card. My father who is from a third world country wishes to leave me and my family a sizable "inheritance". He is alive and well but wants to transfer it in my name before he passes. He is 80 plus. He will move to be with us when he feels it is necessary.

I am worried about two things. 1. While Uncle Sam has been good to me, my father worked himself to the bone in a third world country and I do not feel the US govt has any rights to any thing he earned. Do I have to pay any taxes on anything including property he transfers to me in a third country?

2. whenever I sell whatever my dad has left us - us siblings don't plan on going back to the third world country. Does Uncle Sam collect a portion of the proceeds as tax?

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Nate79
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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by Nate79 » Sat Jun 10, 2017 9:00 pm


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Wildebeest
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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by Wildebeest » Sat Jun 10, 2017 9:01 pm

No tax is paid on any inheritance under $ 5,450,000.

You should be okay if your inheritance in less and you should be super OK if it is higher.
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in_reality
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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by in_reality » Sat Jun 10, 2017 9:15 pm

Faisal wrote: 1. While Uncle Sam has been good to me, my father worked himself to the bone in a third world country and I do not feel the US govt has any rights to any thing he earned. Do I have to pay any taxes on anything including property he transfers to me in a third country?
I don't believe you will have tax on it. If it's over $100,000, you need to file a form. Also, if it could fall into the category of foreign trust (for example if the real estate is held in a trust), it might end up in your taxable income. https://www.irs.gov/businesses/gifts-fr ... ign-person
Faisal wrote:2. whenever I sell whatever my dad has left us - us siblings don't plan on going back to the third world country. Does Uncle Sam collect a portion of the proceeds as tax?
Of course. Just like any other American person (which by virtue of a green card you are), you would face taxes on the appreciated amount. I believe your cost basis would be the same as your fathers on the property. This is the rule that American's have when giving Real Estate - the receiver has a cost basis the same as the giver, and pays tax on the gains when sold.

If you receive property after he dies, then your basis would be the value at time of death.

So his liability will to the country of residence.

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in_reality
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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by in_reality » Sat Jun 10, 2017 9:52 pm

Wildebeest wrote:No tax is paid on any inheritance under $ 5,450,000.

You should be okay if your inheritance in less and you should be super OK if it is higher.
This doesn't apply to NRAs. They have a $60k limit for US assets in their estate before taxation kicks in. The OP isn't talking about US assets anyway.

http://www.thelyongroup.net/files/6976/ ... tizens.pdf

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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by Wildebeest » Sat Jun 10, 2017 10:07 pm

in_reality wrote:
Wildebeest wrote:No tax is paid on any inheritance under $ 5,450,000.

You should be okay if your inheritance in less and you should be super OK if it is higher.
This doesn't apply to NRAs. They have a $60k limit for US assets in their estate before taxation kicks in. The OP isn't talking about US assets anyway.

http://www.thelyongroup.net/files/6976/ ... tizens.pdf
Thanks for educating me.

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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by BolderBoy » Sun Jun 11, 2017 12:00 pm

Faisal wrote:I have a green card. My father who is from a third world country wishes to leave me and my family a sizable "inheritance". He is alive and well but wants to transfer it in my name before he passes
Ummmm, it isn't an inheritance if he gives it to you before he dies, is it? What do the gifting laws in his home country have to say about him gifting money to someone?
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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by LadyGeek » Sun Jun 11, 2017 2:59 pm

I removed an off-topic post and reply. As a reminder, see: General Etiquette
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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by Gill » Sun Jun 11, 2017 3:04 pm

Your father's status isn't clear. Does he reside in the US? Is he a citizen or green card holder in the US?
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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by Hyperborea » Sun Jun 11, 2017 3:10 pm

People are missing the fact that the giver is a NRA with non-US assets. If they give them to the OP while still alive then there is no US gift tax. If they give to the OP after they pass then there is no US estate tax. There might be taxes for the giver depending on the laws of the country in which he is a resident.
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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by Gill » Sun Jun 11, 2017 3:12 pm

Hyperborea wrote:People are missing the fact that the giver is a NRA with non-US assets. If they give them to the OP while still alive then there is no US gift tax. If they give to the OP after they pass then there is no US estate tax. There might be taxes for the giver depending on the laws of the country in which he is a resident.
Do we know he is a NRA? I don't see it in the facts.
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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by mouses » Sun Jun 11, 2017 5:51 pm

As a side comment, be sure finances are set up so that if you die before your father, he isn't left penniless.

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Faisal
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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by Faisal » Sun Jun 11, 2017 6:26 pm

Thanks guys for all your comnents. My fathrr is not a us citizen. Does not have a green card and isnt interested in getting one. So he is a foriegner but i have a green card thus the tax issue.

All phyiscal assets are non us assets. No us bank accounts. All assets handed to me will be abroad.

Others in my placr some have paid taxes others have not so i am confused thus the question. They arent willing to explain how they didnt pay any taxes.

So to make sure i get it all correct. Anything over 100,000 has to be declared to the irs. But i dont pay any tax as he isnt an american. And i am assuming that is in a tax year?

However if he gives me propety which is in my name before he pases i will have to pay estate tax?

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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by Gill » Sun Jun 11, 2017 6:36 pm

Yes, you have to report gifts over $100,000 in a calendar year but there is no tax involved. Also, from the facts you give there would be no gift or estate tax.
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Faisal
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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by Faisal » Sun Jun 11, 2017 8:10 pm

Thanks.

And I am assuming if or when i sell any of the property or assets I will have to pay taxes on the profit as it is income I have earned. Correct?

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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by bsteiner » Sun Jun 11, 2017 8:17 pm

He can give or leave the assets to you in trust rather than outright. That will keep the assets (and the income and growth thereon) out of your estate for estate tax purposes, and will protect the assets (and the income and growth thereon) from your creditors and spouses. It will also protect the assets from GST tax.

Whether he should give them now or leave them at his death depends on several factors, including the tax laws of his home country and whether the assets are highly appreciated so that a basis step-up at death would be helpful.

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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by TedSwippet » Mon Jun 12, 2017 3:08 am

Faisal wrote:Others in my place some have paid taxes others have not so i am confused thus the question.
US taxes, or those of other countries? If US, the only way US tax can fall on a US recipient of a gift or inheritance from a non-resident alien is under section 2801, where the giver is a 'covered' expat under the US's vindictive 'exit tax' rules. And even this is pretty much impossible at the moment, as the IRS has yet to set up any way for a taxpayer to comply with that law.

So given facts so far, as other have said, no US tax liability to you on this gift/inheritance, just an annoying and trap-like 'informational' form 3520.
bsteiner wrote:He can give or leave the assets to you in trust rather than outright. That will keep the assets (and the income and growth thereon) out of your estate for estate tax purposes, ...
Faisal wrote:He is 80 plus. He will move to be with us when he feels it is necessary.
I am not sure how practical it will be for you as a green card holder to sponsor your father's immigration into the US. Perhaps he has other avenues and/or sponsors?

However, if this happens and you rely on a trust, you will want to take care on the time between these two events and the type of trust you use. Yet another US tax trap awaits the unwary here:
As a precautionary note, nonresidents who create foreign grantor trusts that have (or may have) a U.S. beneficiary are subject to U.S. income tax on that foreign trust's income if the nonresidents themselves become U.S. taxpayers within five years of transferring property to the trust (Regs. Sec. 1.679-5(a)). Thus, a nonresident alien who intends to immigrate to the United States should create and fund the foreign trusts at least five years before becoming a U.S. person, in order to avoid being taxed on trust income.

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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by InternationalMan » Mon Jun 12, 2017 9:33 am

Faisal wrote:I have a green card. My father who is from a third world country wishes to leave me and my family a sizable "inheritance". He is alive and well but wants to transfer it in my name before he passes. He is 80 plus. He will move to be with us when he feels it is necessary.

I am worried about two things. 1. While Uncle Sam has been good to me, my father worked himself to the bone in a third world country and I do not feel the US govt has any rights to any thing he earned. Do I have to pay any taxes on anything including property he transfers to me in a third country?

2. whenever I sell whatever my dad has left us - us siblings don't plan on going back to the third world country. Does Uncle Sam collect a portion of the proceeds as tax?
It is implied and I assume that your father is a Non Resident Alien - a non-US person, physically outside of the US. We do not know his country of residence but that country's laws and any treaties between that country and the US would be important to know before doing anything. If this is sizable, then spend some money getting tax advice from a lawyer with experience in planning transactions such as you are contemplating. US tax law in this area is can be confusing, contradictory, and illogical. Making a mistake can be irrevocable and very costly.

Once your father enters the US tax system, it can be difficult and costly get out. So a great deal of planning should be done BEFORE his entry to the US. Does he own any US property, including real estate or US company stocks?

Any good plan will also anticipate two other things:
1) Tax laws will change in the future in unknown ways.
2) Plans people make in the present regarding citizenship, residency, marriage, business etc. may change in the future.

The gift itself from the NRA to the US person can be US gift tax free if done correctly. To avoid US gift tax one has to avoid "transfers of real or tangible personal property situated in the U.S." Although this definition looks pretty simple in meaning, it is not. A clean way to do this is a foreign currency cash wire transfer between 2 accounts NRA and US entity, both outside the US, then the US entity transfers the money to their own US account. Almost as good is a foreign currency cash wire transfer from the NRA's foreign account to the US entity's US bank account.

As others have recommended, it is generally not optimal to receive sizeable sums of money in one's own name. It's usually better to have the NRA establish a trust for the benefit of the US beneficiaries. A perpetual dynasty trust avoids future estate/gift taxes, GST, creditor protection, bad marriages, spendthrifts etc.. Of course the trust or the beneficiaries may still have to pay US/state tax on income or gains. Another benefit of a trust is that it can move. At a future date it may be advantageous to change the trustee and move the trust to a different US state or even a foreign country.

While it is feasible to establish a foreign trust with US beneficiaries, they have several downsides. A big one being a possible audit red flag. Unless your lawyer has a legitimate reason to recommend them, avoid if possible.

This is the Bogleheads forum so I assume you are interested in low cost index investing. With proper planning, even with a corporate trustee and professional asset management, that can be achieved at very reasonable costs.

If foreign property is involved make sure one understands the applicable US tax laws. The US taxes worldwide income. So a US taxpayer earning foreign income or gains will have to report it and may be taxed. Also, there are very complicated and punitive taxes that apply to US taxpayers owning foreign companies. See PFIC and CFC rules. Also, you will find that foreign financial institutions are not keen on having US taxpayer customers. The US imposes extensive regulatory requirements on foreign institutions with US taxpayer customers, so many just would rather just get rid of the customers. At the end of the day it may be simpler and less taxes for your father to reduce all the assets to cash, then simply transfer the cash.

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Faisal
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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by Faisal » Tue Jun 13, 2017 10:36 am

Thanks for all the detailed responses. It is truly appreciated.

The under developed country in question has 0 tax collection or implementation and based on my current job I am exempt from paying income tax in my home nation. Its a legal agreement under international law and its well documented in my organization and the MOFA. The US however still requires me to pay taxes even though other nations do not.

As for any estate taxes and wealth taxes the country in question and the US have a double taxation agreement from what I understand from my father and that coupled with my career makes me exempt from paying taxes in my home country. My father will however have to pay taxes if he sells anything etc. So from my end the only taxes I will need to pay are those in the US.

Also thank you for highlighting that my father getting a US green card would have financial ramifications for us. I and my siblings never thought of it.

To be clear he has no US assets at all. They are all foreign holdings. Physical property. No companies or any business institutions.

We will look into liquidating and then moving assets slowly.

One last question if anybody can answer. Say my father sells some property and the amount over 100,000 is transferred to me. I will report it but when do the taxes actually kick in? Specifically at what threshold has to be reached before the US government taxes the gift my father gives to me.

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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by HueyLD » Tue Jun 13, 2017 11:40 am

No, you won't have tax liability on gifts from your NRA father. Yes, you may have to fill out a form, but there is no tax liability associated with filling out the form.

I encourage you to read this relatively simple IRS guidance on gifts from foreign persons.
https://www.irs.gov/businesses/gifts-fr ... ign-person

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Faisal
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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by Faisal » Tue Jun 13, 2017 12:15 pm

Thank you very much guys.

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Re: Tax question - Non-US citizen parent wants to gift wealth

Post by halfnine » Tue Jun 13, 2017 3:34 pm

Faisal wrote:.....
One last question if anybody can answer. Say my father sells some property and the amount over 100,000 is transferred to me. I will report it but when do the taxes actually kick in? Specifically at what threshold has to be reached before the US government taxes the gift my father gives to me.....
You won't pay US taxes on any gift or inheritance that you receive from your father. However, if the gift/inheritance is not cash you will be liable for any US taxes or reporting accrued from that point forward. Owning foreign assets comes with many complications and taxes/penalties can be onerous. While you may be able to avoid this with his current gifting of cash it is still likely something you will need to get a handle on at the time there might be an inheritance. Due to the criminally small NRA estate limit of 60K having your father relocate assets to the US for you to inherit down the road wouldn't be a good solution either.

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