If you are planning to make gifts of money and property to non-citizen, non-resident relatives, you should check on the tax laws that will apply. These kinds of gifts are very common, especially when families move to the United States and not everyone has resident status. When you are unfamiliar with the tax laws, you may end up owing more money than you expect to the IRS due to U.S. withholding rules.
If you give your relatives money or property during your lifetime, watch out for gift tax exemption and yearly giving limits. U.S. citizens, permanent residents, and non-citizen non-residents can give up to $15,000 every year without paying gift tax. Transferring property to non-citizen relatives may have tax consequences too – particularly for income-producing properties.
Inheritances and Bequests
If you plan to make your gifts as inheritances – meaning gifts that the recipients inherit at your death – keep a few things in mind. Cash gifts should be straightforward because the executor or trustee can send it directly to the recipient. But if the gifts are stock, bonds, or other investment vehicles that have accrued interest, dividends, or capital gains, it is more complicated. The executor or trustee will have to withhold 30% (thirty percent) of the income before your relatives receive anything. This is to account for taxes that will be due on the interest, dividends, capital gains, or rents.
If the gift is real estate, the executor or trustee and the recipient have to comply with FIRTPA, the Foreign Investment in Real Property Tax Act. This U.S. law requires withholding of 15% in most real estate transactions when a foreign person disposes of a U.S. real property interest, including a gift transfer. Depending on the value of the gift, this withholding could be substantial.
For any of these gifts, the non-citizen non-resident relative may need to get an international taxpayer identification number (ITIN) before the executor or trustee can send the gift to them. Some people can simply mail in proof of identity and other documents to get an ITIN. People located in the United States can visit an IRS Taxpayer Assistance Center. But sometimes it is extraordinarily difficult for the gift recipient to get an ITIN. If the recipient lives outside the United States it could take months. People in rural locations, poor health, or who are older may have trouble getting the needed proof of identity and documents, locating a suitable Certified Acceptance Agent, and traveling there. In addition, many older ITINs will expire at the end of 2018, and holders will need to complete a renewal process. This means more paperwork and time to allow a relative to receive a gift.
Are you planning to give gifts of money or property to relatives? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.