1. Foreign National Estate and Gift Tax Planning

2. It’s a Small World
In today’s global economy, it has become increasingly common for international clients to have significant business, family and/or other financial ties to the United States.
Foreign Nationals who have financial ties to the United States may have special estate and tax planning needs under the federal tax rules.

3. Different Gift and Estate Tax Rules for Foreign Nationals
The rules are different. Where a person lives and where a person intends to live can lead to significant difference in tax treatment. An individual’s resident status will help determine their tax liabilities.
Whether you are a:
foreign citizen currently living or planning to live in the U.S., or a
foreign citizen who owns a business or other assets that are located in the U.S., and/or
You and your spouse intend to transfer U.S. property to each other, and one or both of you are not U.S. citizens,
Your US based assets may be subject to a federal transfer tax as high as 40% with only a small tax exemption available.
Living in the U.S.
Assets in the U.S.

4. Where You Live Matters Resident Alien Non-Resident Alien
Where a person primarily lives can matter when determining their estate and gift tax planning needs. Under the U.S. Estate and Gift Tax laws, a person who is not a U.S. citizen may be considered either a Resident Alien or a Non-Resident Alien.
A Resident Alien is defined as anyone who holds a green card, or who lives or is present in the U.S. for 183 days per year. Based on the facts and circumstances, a person may be considered a Resident Alien if their primary home is in the U.S., and they have no definite present intent to leave. If a person does not meet these requirements, they may be considered a Non-Resident Alien.
Both Resident and Non-Resident Aliens may have unique estate and gift tax planning needs if they own real property in the U.S., own a business in the U.S. or have more than $60,000 in U.S.-based assets.

5. 40%    Amy & Michael Federal Estate Tax Rate Live outside the U.S.
Amy and Michael are married. They are residents and citizens of China, but have family that lives in the U.S. Michael and Amy found that they were often visiting their relatives in the U.S. and decided to purchase a vacation home near their family to use while they were visiting. Under the non-resident alien estate tax rules, if Michael dies, Amy may be required to pay estate tax on the vacation home and any other U.S. assets in excess of the $60,000 exemption limit. Since Amy is also not a U.S. resident, there is no available marital deduction or other exclusions.
Amy may be able to defer the estate taxes on the assets in excess of $60,000, if those assets are transferred through a QDOT. Amy would also be eligible to receive annual payments of any income derived from those assets in the trust. In addition, Michael could purchase a life insurance policy that may provide Amy with the liquidity in order to pay any estate taxes if assets were transferred outside the trust, and with a direct cash benefit since life insurance is not considered part of the estate assets for Non-Resident Aliens
Own real estate in the U.S. 
U.S. property subject to U.S. Estate Tax – minimal exemption available 

6. 40%    Juan & Maria Federal Estate Tax Rate
Live in the U.S. – Non U.S. Citizen married to U.S. Citizen 
40%
Federal Estate Tax Rate
Juan and Maria are married and their primary residence is in the U.S. Juan and Maria met while Juan was working as an engineer for a U.S. firm based in Mexico. Juan is a citizen of the U.S. and Maria is a citizen of Mexico. Juan was very successful and has a diverse investment portfolio including stocks, bonds, and real estate worth approximately $10,500,000. If Juan predeceases Maria, she may owe estate taxes on any assets in excess of the $5,490,000 estate tax exemption, unless the assets are transferred through a QDOT.
A potential solution may be for Juan and Maria to purchase a life insurance policy. If owned by Maria, the proceeds of the life insurance policy would be paid outside of Juan’s estate and may provide Maria the ability to pay any estate taxes owed.
Own businesses or stock in U.S. firms 
Transfers to Resident Alien may be subject to tax 

7. Whose Resident Status Matters
Tax Exemption
Person Transferring Assets
Tax Exclusion
Person Receiving Assets
So, how do you determine what effect the answers to these questions have on you and your spouse or heirs?
Exemptions
Are based on the status of the person who the assets are coming FROM
Resident Aliens are treated as U.S. citizens for the purpose of gift and estate tax exemptions.
Exclusions and Deductions
Are based on the status of the person who the assets are going TO
Resident Aliens and Non-Resident Aliens are treated equal for the purpose of determining exclusions and deductions.
Marital Deduction
Person Receiving Assets

8. Tax Planning Questions1
Individuals who are not U.S. Citizens, but have ties and assets in the U.S., as well as individuals who are U.S. citizens but whose spouse is not, have special estate and gift tax planning considerations.
When evaluating what the potential estate and gift tax could be there are several important questions to ask:
What assets are included in the estate?
How much of an exemption is available?
Can my spouse use a Marital Deduction?
How are the assets being transferred?
**Creative: can we illustrate the questions somehow instead of words??**
What assets are included?
How much of an exemption is available? 2
Is a marital deduction available? 3
How are the assets being transferred? 4

9. What assets are included?
U.S. Citizen or Resident Alien
Non-Resident Alien
What assets are considered to be part of the estate for estate tax purposes differs based on residency status.
U.S. based assets include all tangible property and real estate located in the U.S., or stocks and ownership interest in a U.S. corporation. Life insurance is not considered U.S. property for these purposes.
Based on the size of the assets included in the estate, there may be an estate tax exemption that would limit the estate taxes due.
All Worldwide Assets
U.S. Based Assets Only

10. How much of an exemption is available?
U.S. Citizen or Resident Alien
The tax code provides exemptions for a portion of a person’s taxable estate. These tax exemptions are based on the resident status of the person transferring the asset. In other words, the exemption is based on who the assets are coming FROM.
Resident Aliens can claim the same estate tax exemption as a U.S. citizen, $5,490,000 (in 2017). However, Non-Resident Aliens are limited to a $60,000 estate tax exemption.
Both Resident and Non-Resident Aliens may also have special Gift Tax implications to consider as well.
The general annual gift tax exclusion for gifts is $14,000. Gifts in excess of $14,000 in a calendar year may be subject to gift taxes.
In conjunction with the annual exclusion, there may be additional lifetime gift tax exemptions to consider depending on who the gifts are being transferred from. Gifts from a U.S. Citizen or Resident Alien are subject to a Lifetime Gift Tax Exemption of $5,490,000. In contrast, there is no lifetime exemption amount available for gifts from a Non-Resident Alien. Who is receiving the gift and factors such as whether that person is a spouse or that person’s residency status may also impact the tax liability.
Non-Resident Alien
$5,490,000
$60,000

11. Is a marital deduction available?
 U.S. Citizen
Unlimited
 Resident Alien
No marital deduction*
In addition to the estate tax exemption and gift tax exclusion, a spouse who is receiving assets may also be able to claim a marital deduction. These additional deductions are based on the residency status of the spouse receiving the gift or estate assets.
The gift and estate tax marital deductions generally allow for transfer between spouses with no transfer tax consequences. However, there is no unlimited marital deduction for transfers to non-citizen spouses.
*Gifts and Estate Assets transferred Foreign National spouses through a Qualified Domestic Trust (QDOT) may be eligible for tax deferral benefits.
 Non-Resident Alien
No marital deduction*
*Gifts and estate assets transferred to foreign national spouses through a Qualified Domestic Trust (QDOT) may be eligible for tax deferral benefits.

12. Annual Gift Tax Exclusion
Transfer of Assets
Assets Transferred From
Assets Transferred To
Annual Gift Tax Exclusion
Lifetime Exemption
Estate Tax Exemption
U.S. Citizen or Resident Alien
U.S. Citizen Spouse
Unlimited Marital Deduction
U.S. Citizen Non-Spouse
$14,000
$5,490,000
Foreign National Spouse
$148,000
Foreign National Non-Spouse
Non-Resident Alien
N/A
$60,000
If the person transferring assets is either a U.S. Citizen or Resident Alien and they are transferring to a U.S. citizen, the full possible exclusions exemptions, and deductions allowable under the tax laws may be available. Reminder: the estate is based on all worldwide assets of the transferor.
Transfers to a Spouse: The gift and estate tax marital deductions generally allow for transfer between spouses with no transfer tax consequences, and a U.S. citizen spouse receiving assets may enjoy unlimited marital deductions.
Transfers to a Non-Spouse: In the instance where the assets are transferred to a U.S. Citizen who is not spouse, such as a child, grandchild or other heir, the tax code provides for an Annual exclusion of $14,000 in gifts to be made without tax consequences, and allows for a lifetime gift and estate tax exemption of $5,490,000 prior to incurring a tax liability.
In this scenario, the gift or estate assets are coming FROM a U.S. Citizen or Resident Alien and being transferred to a Foreign National (either Resident Alien or Non-Resident Alien) spouse or heir. Reminder: the estate is based on all worldwide assets of the transferor.
Transfer to Spouse: There is no gift or estate tax marital deductions for transfers made to Foreign National spouses. However, non-citizen spouses can claim a special annual gift exclusion of $148,000. Since the Exemptions are based on who the assets are being transferred from, transfers from a U.S. citizen still qualify for the $5,490,000 lifetime exemption even for a non-citizen spouse.
*A Foreign National spouse may be able to defer the estate tax if the property is transferred through a Qualified Domestic Trust (QDOT).
Transfers to a Non-Spouse: In the instance where the assets are transferred to a non-spouse, non-citizen, the tax code provides for an Annual exclusion of $14,000 in gifts to be made without tax consequences, and allows for a lifetime gift and estate tax exemption of $5,490,000 prior to incurring a tax liability.
In this scenario, we’re looking at the result of the transfer from a Non-Resident to a U.S. citizen. Reminder: estate is based on U.S. based assets only
Transfers to a Spouse: The gift and estate tax marital deductions generally allow for transfer between spouses with no transfer tax consequences, and a U.S. citizen spouse receiving assets may enjoy unlimited marital deductions independent from the status of the person .
Transfers to a Non-Spouse: Because exemptions follow the transferor, in this scenario where the assets are being transferred from a non-citizen there are no special tax considerations even if the person receiving the assets is a U.S. citizen. Therefore, where the assets are transferred to a non-spouse, no matter their residency status, the tax code provides for an Annual exclusion of $14,000 in gifts to be made without tax consequences, and provides no lifetime exemption. In addition, the estate tax exemption is limited to $60,000 for Foreign National estate transfers.
This last scenario describes the potential tax implications if the transferor is a Non-Resident Alien, and is transferring to a Foreign National which includes both resident aliens and non-resident aliens. Reminder: estate is based on U.S. based assets only
Transfer to Spouse: There is no gift or estate tax marital deductions for transfers made to non-citizen spouses. However, non-citizen spouses can claim a special annual gift exclusion of $148,000. Since the Exemptions are based on who the assets are being transferred from, estate tax exemptions on transfers from a Non-Resident Alien are limited to $60,000. However, a Foreign National spouse may be able to defer the estate tax if the property is transferred through a Qualified Domestic Trust (QDOT).
Transfer to a Non-Spouse: Where the assets are being transferred from a non-resident alien to a foreign national there are no special tax considerations above the annual gift tax exclusion of $14,000 with no lifetime gift tax exemption. In addition, the estate tax exemption is limited to $60,000 for Foreign National estate transfers.

13. Qualified Domestic Trust (QDOT)
How the gifted or estate assets are transferred also has an impact on the potential tax implications. While Foreign National spouses may not be eligible to claim a gift or estate tax marital deduction, a non-citizen spouse may be able to defer the estate tax if the property is transferred through a Qualified Domestic Trust (QDOT).
If the assets are being transferred directly to a foreign national spouse, no marital deduction is allowed. Therefore, only the exclusion or exemption that will apply is that which is allowable based on the resident status of the transferring spouse. However, if the assets are transferred to a QDOT, then the assets are not included in the estate for tax purposes and the spouse can receive income from the trust outside of the estate tax requirements.
A QDOT has some specific requirements in order to qualify for the tax deferred benefits
Deceased
Spouse
QDOT
Foreign National
Surviving Spouse
Estate
Assets
Trust
Income

14. Qualified Domestic Trust (QDOT)
Creation
Created by U.S. Spouse, or by surviving spouse within 9 months of receiving property
Must have Crummey Power
Distributions
Trust pays income earned to surviving non-citizen spouse annually
Principal distributions for “hardship” only
If spouse becomes U.S. citizen – can distribute using marital deduction
Benefits
Allows for estate tax marital deduction for transfer to a non-citizen spouse
Defer payment of estate tax until the death of the surviving non-citizen spouse
(Read Slide with “extras” below)
Creation
The trust must give the beneficiary a Crummey Power, which gives the beneficiaries the right to demand trust assets, but only to the extent of the gifts made in the year of the exclusion up to that year’s annual exclusion limit ($14,000 in 2017).
Distributions
If assets are transferred to the trust, the trust can pay any income from those assets to the surviving spouse outside of the decedent’s estate. However, the proceeds may be subject to income tax.
Benefits (read slide)
Disadvantages (read slide)
A QDOT may be a great option for transferring cash or other assets to a spouse in order to defer the estate tax. However, there are limitations as to how much access the surviving spouse may have to those assets in order to preserve the benefit of the tax deferral. In addition, the QDOT is only an available option for a spouse and cannot be used to defer estate taxes that may be owed on transfers to children, grandchildren, or other heirs.
There may be another solution…
Disadvantages
Additional reporting requirements if trust assets are over $2 million
Principal distributions are taxed as part of deceased spouse’s estate
Only defers estate tax liability, does not decrease it.

15. A Simple Solution for Foreign Nationals
Life Insurance may help provide death benefit protection, long-term tax benefits, asset security and certainty in estate planning for Foreign Nationals.
Life Insurance is not considered a U.S. based asset for gift and estate tax purposes.
Death Benefit
Tax Benefits
Asset Security
Estate Planning

16. Why Life Insurance?  Proceeds are not subject to estate taxes
Life Insurance offers many benefits to the owner and beneficiaries regardless of their citizen status. However, there are characteristics of a life insurance policy that may assist foreign nationals with their special estate and tax planning needs.
The proceeds payable under a life insurance policy are not considered a tangible U.S.-based asset and are not subject to U.S. estate taxes for non-resident aliens. 
Proceeds are not subject to estate taxes

17. Why Life Insurance?    Tax advantaged distributions1
Tax deferred cash value growth
Benefits payable under a life insurance policy are generally income tax free.
In a permanent life insurance policy any growth in the cash value is tax-deferred. This cash value may also be accessed income-tax free by the policy owner using policy loans or withdrawals.
By using Life Insurance as part of the estate plan, a policy owner may be able to provide a tax-free benefit to their heirs in order to pay any U.S. estate taxes without having to sell property. In addition, the policy may also provide some wealth transfer to the beneficiary after any tax liabilities are met. 
Benefits are generally income tax free2
1 Policy loans and withdrawals reduce the policy’s cash value and death benefit and may result in a taxable event. Withdrawals up to the basis paid into the contract and loans thereafter will not create an immediate taxable event, but substantial tax ramifications could result upon contract lapse or surrender. Surrender charges may reduce the policy's cash value in early years.
2 Internal Revenue Code § 101(a)(1). There are some exceptions to this rule. Please consult a qualified tax professional for advice concerning your individual situation.

18. Why Life Insurance?   1 2 Estate planning confidence
Liquidity heirs can use to protect assets
Additional Benefits of Owning a U.S.-based Policy
Beyond the estate and tax planning benefits of the life insurance policy itself, a foreign national may also find benefit in participating in the U.S. Life Insurance Market.
The U.S. Life Insurance market is the most mature in the world which allows for improved product design and the most competitive product pricing (Source: Global Insurance Industry Insights, Global Insurance Pools 4th ed. McKinsey & Company (2014))
The U.S. Life Insurance industry is highly regulated through both federal and state oversight and is considered one of the most stable in the world (source: Potent Policies for a Successful Normalization, Global Financial Stability Report, Chapter 3 – The Insurance Sector (April 2016)
In addition, with the contract and benefits denominated in the U.S. Dollar, a policy may provide financial confidentiality, wealth diversification, and economic security that may not otherwise be available to a foreign national.
A U.S. Life Insurance contract provides the personal freedom to choose beneficiaries and heirs and can avoid the concern of forced heirship for those whose home country requires a specific inheritance.
Regardless of the policy owner’s citizen status, a life insurance policy may also help with many other needs such as income protection, business succession planning, legacy planning, wealth protection, and executive benefit planning.
Additional Benefits of Owning a U.S.-based Policy
The U.S. Life Insurance market is the most mature in the world which allows for improved product design and the most competitive product pricing1
The U.S. Life Insurance industry is highly regulated through both federal and state oversight and is considered one of the most stable in the world2 1 2
1Global Insurance Industry Insights, Global Insurance Pools 4th ed. McKinsey & Company (2014))
2Potent Policies for a Successful Normalization, Global Financial Stability Report, Chapter 3 – The Insurance Sector (April 2016)

19. Keeping Our Promises
Choosing which life insurance company to partner with can be just as important as deciding to purchase a life insurance policy. National Life maintains a strong portfolio of products and is committed to working to find the right product to fit your needs.
National Life Insurance Company has an A+ financial strength rating with Standard & Poor’s based on the company’s capital strength and credit quality*.
At National Life, our story is simple: for more than 167 years** we’ve worked hard to deliver on our promises to millions of people with our vision of providing peace of mind in times of need. It’s our cause, stemming from a deep passion to live our values to do good, be good, and make good, every day.
* Standard & Poor's Financial Strength rating for National Life Insurance Company is A+ (Strong, 5 out of 21) as of 10/15/ Ratings are subject to change.
** National Life Insurance Company was founded in 1848.
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