TRUST & ESTATE PLANNING

Planning to Move to the United States?

12.07.2021 - Leticia Hernandez, Trust Counsel

If you are a non-US person planning to permanently move to the United States, make pre-immigration tax planning a priority. Understanding how the US tax code may affect your future income and your assets can be a daunting task. While the tax laws are complex and often confusing, using advanced tax planning strategies can help minimize estate taxes and preserve more of your family’s wealth.

US Tax Laws Will Apply Once You are in the US        

Once you are considered a US person, you become a US taxpayer. That means you will be taxed on your worldwide income, your assets will be subject to capital gains tax and your entire estate will be subject to estate tax upon your death.

It’s a good idea to have an understanding of what constitutes taxpayer status. Residents, non-resident aliens and US citizens are taxed differently on income and assets that they sell or leave as part of their estate. You are considered a nonresident alien for any period that you're neither a US citizen nor a resident alien for tax purposes. If you meet the green card test or the substantial presence test for the calendar year, you’re a resident alien for the year. If you were born in the US, you’re a US citizen.

Not knowing your tax status beforehand can be costly. For example, citizens and residents are taxed on worldwide income while non-residents are generally taxed only on income earned in the US.

Developing a plan before you move to the US that considers your taxpayer status can help minimize income and estate taxes and maximize the assets that you can keep and pass on to your beneficiaries.

Estate vs. Income Taxes

Your income and estate will be subject to two different US tax systems.

The first, the income tax system, is based on residency. That involves determining the number of days you spend in the US each year or applying a formula based on several years of residency. Or, if you’re a green card holder, you need to find out ahead of time whether you're subject to US income taxes on worldwide income.

Non-resident aliens are taxed differently than resident aliens on income. If you are a non-resident alien, you may qualify for some tax relief through a tax treaty benefit if one exists with your home country. If you are a resident alien, you are generally not eligible for a tax treaty benefit from your country of origin even if one has been negotiated.

A key income tax planning strategy for keeping more of your income and the capital appreciation earned on your assets is to accelerate income payments and trigger capital gains on assets prior to becoming a US tax resident. 

The second set of taxes to consider are US estate and gift taxes. This tax system is based on whether you are considered domiciled in the United States with no present intention of moving from the US. This is a subjective test and takes several factors into consideration such as where your primary home is located, where you work or maintain your business, where your family is located, location of personal property etc. If you are domiciled in the US, you are subject to estate and gift taxes at a minimum rate of 40% for assets transferred above the tax-free exemption amount.

If you have significant wealth, it may be beneficial to move a portion of your assets out of your estate before moving to the US to minimize estate tax consequences upon your death.

Planning Strategies to Consider Before You Move

If you are a non-US person who wishes to leave a substantial legacy to US persons, funding of irrevocable foreign trusts prior to immigrating to the US is a key planning technique. As long as it is property drafted and administered, gifting assets to the trust before you move to the US can help to ensure they will not be subject to estate tax upon your death.

A word of caution when using trusts: It is important to ensure the trust is not funded improperly with US assets to cause the property to be deemed to be included in your estate for US estate tax purposes.

If desired, it is possible to maintain control over the assets placed in a trust by using a directed trust structure. With a directed trust, you have more flexibility and can appoint someone other than the trustee to be in charge of items like distributions or investments.

It Pays to Plan

The benefits of having a strong pre-immigration plan in place before you permanently move to the US can make the difference in keeping more of your family’s legacy. Make sure that you devote sufficient time to analyzing and evaluating the options for residency status and decide which estate plan best meet your needs.




This communication is intended solely to provide general information. The information and opinions stated may change without notice. The information and opinions do not represent a complete analysis of every material fact. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods.

IRS Circular 230 Notice: Pursuant to relevant U.S. Treasury regulations, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from your tax advisor.

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