Relinquishing one’s US citizenship can mitigate an individual’s estate and gift tax obligations, but a “Covered Expatriate”* should plan carefully when disposing of assets. Internal Revenue Code Section 2801 imposes a tax on US citizens or residents who receive certain gifts or bequests from Covered Expatriates (CEs). Even if the property is non-US-situs property, all of it is subject to the 2801 taxing regime.
That said , Section 2801 does offer planning opportunities.
Annual Exclusion Gifts – CEs can give an unlimited number of USD 15,000 gifts of cash or property, completely tax free.
Gifts/Bequests of US Property – Section 2801 does not apply to gifts “otherwise subject to
US estate or gift taxes”.
Unlimited Marital and Charitable Deduction
Gifts to US Spouse – CEs can transfer unlimited amounts of property to a spouse tax free.
Domestic and Foreign Trusts
A Domestic Trust Gift – This is treated as if it were a US person
and pays tax at the highest marginal tax rate applicable.
Transfers to Foreign Trusts – These should be analysed carefully.
Using Foreign Trusts to Defer Taxes – CEs can achieve tax deferral and income-tax savings.
Distributions from Foreign Trusts – When attributable to a gift or bequest from CEs, the
2801 taxing regime applies.
Election to Be Treated as A Domestic Trust – This allows CEs to plan whether they want to pay the taxes now or in the future.
Life Insurance Trusts – These can cover insurance premiums and provide funding for taxes
and other wealth protection.
Gifts to Non-US Persons
Avoiding Estate and Gift Taxes – Simply gift non-US-situs assets to non-US persons.
Allocation of Gifts Among US Persons – Taxes for a portion of an estate that is US-situs and left to US beneficiaries, would be borne by CEs.
Generation-Skipping Transfer (GST)
It can avoid the additional GST tax currently with a top rate of 40%.