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Green Card Holders May Not Yet Be Domiciled in the U.S. for Estate & Gift Tax Purposes

If you are considering moving to the United States, you need to consider your tax status for both U.S. income tax purposes and U.S. estate and gift tax purposes.[1] Even if you have already obtained lawful permanent residence status (your “Green Card”), you may not yet be subject to U.S. estate and gift tax as a U.S. “domiciliary”. Depending on your domiciliary status (and the status of your family members), certain planning may potentially be done to minimize your eventual U.S. tax liabilities. In short, the estate and gift tax only applies to foreigner’s U.S. assets.[2] Without advance legal planning, a foreigner who becomes “domiciled” for estate and gift tax purposes is also taxed on all their gifts of foreign assets and on only foreign assets included in their estate when they die.

Domicile for U.S. estate and gift tax purposes is a subjective test, based on many facts and circumstances. An individual is considered domiciled in the U.S. if the individual: (a) is living in the U.S. and has the intention to remain in the U.S. indefinitely; or (b) has lived in the U.S. with such an intention and has not formed the intention to remain indefinitely in another country. Residence without the requisite intention to remain indefinitely will not suffice to constitute domicile, nor will intention to change domicile effect such a change unless accompanied by actual removal. As a result, determining domicile is quite subjective and is based on all the facts and circumstances of the individual in question. Such domiciliary factors include, but are not limited to, where the individual’s primary residence is located, where the individual carries on his family, social, religious, and business relations and activities, etc.

An individual who desires to spend time in the U.S. may maintain his domicile outside of the U.S. by taking every step possible to evidence his intention to return to his home country during any stays in the U.S. The maintenance of a majority of business interests, banking relationships, advisors, and other such relationships in the home country may indicate that an individual does not have the requisite intent to change his domicile. Maintaining close contact with family and friends in the home country will also be a strong factor in maintaining the foreign domicile. Some cases have illustrated the importance of communications with such family and friends, especially in situations in which the individual residing in the U.S. stressed his desire to move back to the country of domicile. Other cases have considered the fact that the individual remained active in civic or charitable organizations abroad as factors. The maintenance of a voter’s registration and driver’s license in the foreign country are additional factors. Similarly, voting in elections held in the foreign country and filing tax returns in the foreign country may be indicative of the maintenance of the foreign domicile. Similarly important is the maintenance of a residence in the foreign country that is available to the individual at all times. Eventually, if the individual starts spending more time in the U.S. and establishing more ties with the U.S. than with the foreign country, his domicile may shift to the U.S.

Ideally, you should meet with a U.S. international tax attorney prior to spending substantial time in the U.S. or applying for a Green Card. However, even if you have already applied for, or even obtained, your Green Card, you may not yet be legally domiciled in the U.S. for U.S. estate and gift tax purposes. A thorough analysis of your facts and circumstances could potentially provide an additional window of time for effective U.S. tax planning.

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[1] See, for example, Estate of Barkat A. Khan v. Commissioner, TC Memo 1998-22, a case in which lawful permanent resident status was only one of many factors considered by the court in a determination of domicile for estate tax purposes.

[2] Properly planned and maintained legal structures can reduce or eliminate U.S. estate taxation for foreigners investing in the U.S.