Estate Tax Liability?

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webcite_99
Posts: 46
Joined: Fri Feb 18, 2005 8:45 pm

Estate Tax Liability?

Post by webcite_99 »

Hi.

My mother-in-law is and at all times been a Canadian citizen and Resident. 10 years ago, her husband, also at all times having been a Canadian Citizen and Resident, passed away and bequeathed all of his assets to my mother-in-law. Included in the estate, was a condo located in Florida (bought for $60,000USD and worth approx. $100,000USD US at the time of death) and was owned equally between them as joint tenants. My mother-in-law is now trying to sell the condo (for approx $240,000USD), and the lawyer for the buyer is concerned that there may be a possible estate tax liability owed to the US government that was never paid and that in turn would cloud the title.

The ultimate question is: whether two non-US citizens/non-US residents are in any way liable to the US for estate taxes from real estate owned in the US?

My hunch is that the lawyer is confused by the situation of a US citizen and a non-US citizen spouse and that the US does not have tax jurisdiction over her. If I'm wrong, and the US does have a claim for unpaid US estate taxes, would my mother-in-law nonetheless be saved by statute of limitations given that her husband died 10 years ago? Alternatively, are the amounts low enough that they would be subject to some deminimus safe harbor exepmtion?

Thanks in advance.

Rick
nelsona
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Post by nelsona »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">The ultimate question is: whether two non-US citizens/non-US residents are in any way liable to the US for estate taxes from real estate owned in the US?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Indeed they are, which is why most Cdns owning US property hold these under a corporation.

Now, the transfer to your mother *probaly* was tax free in uS (or at least tax deferrd). The husbands estate probably owed tax at death on his portion of gain transferred to wife. Again, thislikely could have been deferred.

The tax may not that much, and, since it is likely taxable in Canada, the Cdn tax can be used against the US estate tax, when she dies.

This MUST be handled by a good cross-border tax/estate atty.

<i>nelsona non grata... and non pro</i>
webcite_99
Posts: 46
Joined: Fri Feb 18, 2005 8:45 pm

Post by webcite_99 »

Thanks Nelosna.

A few follow-up questions:

1) would my mother-in-law nonetheless be saved by statute of limitations given that her husband died 10 years ago?

2) are the amounts in question low enough that they would be subject to some deminimus safe harbor exepmtion?

3) If no to both of the above, than when is the amount of tax determined -- the value of the property at the time of death or the value today given that the paper work had never been filed until today?

4) how much is the percentage amount of the tax?

5) how is the taxable amount determined given that the property was partially owned in mother-in-law's name (i.e. tax on 50% of the increased value from the time the value is determined or some other percentage?)


Thanks again.


Rick
nelsona
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Post by nelsona »

These are questions for a legal expert.

As I said, both the US and Canada may <i>automatically</i> defer taxation on the property until (a) it is sold or (b) your mother-in-law dies.

The different tax rates, the various exemptions etc make any ballpark number useless.

<i>nelsona non grata... and non pro</i>
Norbert Schlenker
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Post by Norbert Schlenker »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by webcite_99</i>
My mother-in-law is and at all times been a Canadian citizen and Resident. 10 years ago, her husband, also at all times having been a Canadian Citizen and Resident, passed away and bequeathed all of his assets to my mother-in-law. Included in the estate, was a condo located in Florida (bought for $60,000USD and worth approx. $100,000USD US at the time of death) and was owned equally between them as joint tenants. My mother-in-law is now trying to sell the condo (for approx $240,000USD), and the lawyer for the buyer is concerned that there may be a possible estate tax liability owed to the US government that was never paid and that in turn would cloud the title.

The ultimate question is: whether two non-US citizens/non-US residents are in any way liable to the US for estate taxes from real estate owned in the US?

My hunch is that the lawyer is confused by the situation of a US citizen and a non-US citizen spouse and that the US does not have tax jurisdiction over her. If I'm wrong, and the US does have a claim for unpaid US estate taxes, would my mother-in-law nonetheless be saved by statute of limitations given that her husband died 10 years ago? Alternatively, are the amounts low enough that they would be subject to some deminimus safe harbor exepmtion?
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
I would not be as concerned as Nelson seems to be.

First, let's get the statute of limitations question out of the way. There is <b>no</b> time limitation on tax evasion and failure to file a required return could be considered evasion, so that won't save her.

Second, US tax law reaches all US persons <b>and</b> all persons holding US situs property. Florida real estate is definitely US situs property (as are IRAs, US mutual funds, and stocks and bonds of US companies), so it is subject to the estate tax on death.

So far, this doesn't sound too good. Here is the good news. The statutory exemption for the first $60,000 of an estate that applies to all non-resident aliens not further protected by a tax treaty is of very long standing. It certainly applied in 1995 when her husband died.

Given that the condo was jointly owned and in the absence of other evidence, it is fair to assume that it would have been deemed 50% hers at her husband's death. So his taxable estate in the US would have been $50,000, i.e. below the exemption, and no estate tax would have been due in any case.

To tidy things up, I suppose she could file an estate tax return with a zero liability. The IRS is quite charitable about voluntary admissions. Finding the right forms ten years later is likely to be a challenge.

There is an additional issue. US states can also levy estate taxes and Florida does. As far as I can see, Florida is following the federal exemptions at the moment but I have no idea (a) whether Florida had an estate tax in 1995 and (b) whether the state exemption in 1995 was also $60,000, which would let the estate off the hook.

I would try a less costly path than Nelson suggests. I would explain to the complaining lawyer that the $60k exemption has applied forever and that the condo would have been exempt back in 1995. If that doesn't work, I would find an old 1995 form, fill it out coming to a zero balance, give a copy to the buyer's lawyer to look at, and see whether that doesn't soothe him/her. If necessary, send the damn thing to the IRS to make the lawyer happy. If none of that is sufficient, retain a lawyer to argue with the other lawyer.
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