This memorandum introduces
concepts about the applicability of the U.S. estate tax at the time of a
decedent's death to their U.S. situs properties.
The U.S. estate tax exposure will vary, dependent upon the type of U.S. assets held at the time of
death. Bank accounts, including certificates of deposits, should not be treated as U.S. based property includible in the U.S. gross estate.
Stocks and bonds issued by U.S. enterprises will be subject to U.S. estate tax, if held directly at death. Similarly, U.S. based real estate will be includible. In the past many persons have sought to avoid the application of these rules through the use of an intermediary foreign corporation, such as a corporation organized in the Cayman Islands or the Netherlands Antilles, for purposes of holding these properties. Under such circumstances, at the time of death only shares in a foreign corporation would be held, and such shareholding would be immune from U.S. estate tax. Another alternative is the use of a foreign trust. However, the trust must be irrevocable and you must not retain such rights and control powers which would cause inclusion in your U.S. gross estate.
One planning item to remember is that, before bringing additional funds into the United States, you might arrange the transfer of those funds to your children or to a trust (uncontrolled by you) for your children. The U.S. investment can then be made by or for your children. This will eliminate a future estate tax problem for your estate, since that property will not be owned by you at death.
This summary of applicable rules and ideas is only a preliminary analysis. Many complications occur in planning in this context. When you have refined your ideas, we will be pleased to help you further with these matters.