- Posts by Akane SuzukiPrincipal
Akane helps her clients on a broad range of estate planning matters, from Wills and powers of attorney to complex gifting strategies involving trusts, business succession, and charitable giving. Her clients include business ...
Do you have assets in foreign countries?
Are you or your spouse from another country?
Do you have a relative in another country moving to the U.S., buying U.S. property, or making a gift to someone in the U.S.?
Are you a green card holder thinking about moving back your home country?
If you answer “yes” to any of these questions, you may want to consider the significant challenges that state and federal legal and tax rules could present. Without a strategy in place, one may face being hit with hefty taxes or complications, which could be minimized with proper estate planning.
People immigrate to the United States for many different reasons. Many come here for work reasons and, somewhere along the way, obtain permanent resident status, otherwise known as holding a “green card.” They may work in the U.S. for most of their careers, raising children and becoming integrated into the social fabric of their community. But for various reasons, some will wish to “go home” when they retire. Maybe the home country offers better healthcare. Maybe even after many years in the U.S., they feel more comfortable speaking their native language. Maybe their closest relatives are in their home country, and they feel that they need a support network as they age. Maybe the food is better.
Whatever the reason, those who have been green card holders for a long time (specifically, 8 out of the previous 15 tax years) need to be mindful of the so-called “expatriation tax.” The Heroes Earnings Assistance and Relief Tax Act of 2008 (the “HEART Act”) imposes a tax at the time of departure on U.S. citizens who have renounced their citizenship and on those who renounce their long-term permanent resident status after June 17, 2008. The HEART Act expatriation rules apply to those who, at the time of expatriation:
Japan’s labor and employment laws are generally more favorable to employees than the U.S. counterparts. Against this background, companies in Japan must maneuver carefully when they need to reduce their workforce. A recent newsletter from Kojima Law Offices in Tokyo explains the background and offers some pointers for companies trying to navigate these waters. Also discussed is the new requirement as of this month that employers of a certain size offer (and pay for) an annual “stress check” to their employees.
To read the full article, go to: http://www.kojimalaw.jp/en/newsletters/KLO_Newsletter(Vol.8).pdf
Last week, two of the 23 wards (local municipalities that form the central part of Tokyo) issued the first certificates recognizing same-sex partnerships. This is not the same thing as recognizing same-sex marriage – marriage is governed by national law, and Japan’s Family Code does not recognize same-sex marriages. These certificates, issued pursuant to ordinances in Shibuya and Setagaya wards, are not legally binding, so they can only request hospitals, landlords and other businesses to treat certificate holders as they would married couples. However, many view this as a symbolic step that will, at a minimum, trigger discussion.
Japan has always been a rather expensive place to live. Now, leaving Japan became expensive as well.
As of the first of this month, Japan has instituted an “exit tax.” People who have resided in Japan for more than five years out of the preceding ten years who leave Japan will now face a deemed-disposition type tax upon their departure, if they own certain types of financial assets that exceed 100 million yen.
Interestingly, this tax can apply even if the Japanese resident doesn’t leave Japan – it can apply when a resident of Japan gifts or bequeaths assets to a nonresident of Japan. This can make it more costly for family members in the U.S. or elsewhere in the world to inherit or receive gifts of certain financial assets from Japanese residents.
This tax is in effect as of July 1, but there is still some planning opportunity available for non-Japanese citizens who reside in Japan. The government has announced that they will not “start the clock” on the five-year rule until July 1, 2015. Thus, for foreign nationals living in Japan, this tax does not begin to apply until June 30 of 2020.
For a more detailed (yet reader-friendly) analysis, see PriceWaterhouse Coopers Japan’s alert: https://lnkd.in/bWrvtKu
In Japan, we have a tradition of scrubbing the house inside and out at the end of a year to welcome the New Year, with everything clean and in order. I remember many late December days, wiping the glass windows, re-papering shoji screens, and holding the ladder steady while my mother got up to clear the cobwebs.
Perhaps that sense of seeking order in the beginning of a new year is universal, as Americans have “New Year’s Resolutions” and I usually get extra calls and emails in January from people who want to create or update their estate plans. It may also be that getting tax information in anticipation of April 15, makes them think about financial planning and estate planning – they go hand in hand with tax planning. With the new year, we have (some) new estate and gift tax figures I want to share:
- Federal estate and gift tax:
- The gift tax annual exclusion remains at $14,000 – This is the exclusion that people still remember being $10,000. It has been going up with inflation adjustment for some years. There is no change this year from last year, due to the methodology for calculating this indexed exclusion.
- The expanded gift tax annual exclusion for noncitizen spouses is now $147,000.
- The estate and gift tax applicable credit now exempts $5,430,000 for U.S. citizens and residents. This credit is variously known as the unified credit, exemption, exclusion, etc.
- The tax rate is still 40%.
- Washington State estate tax:
- The exemption is now $2,054,000, per inflation adjustment.
- The graduated rates range from 10% to 20%.
- Oregon State estate tax
- The exemption is $1,000,000.
- The graduated rates range from 10% to 16%.
For people who have an international element to their estate planning – whether because they are from another country, have assets in other countries, or have beneficiaries in other countries – proper planning is even more crucial. The tax rules are different for non-citizens and non-residents, and you need an estate plan that fully considers those rules, as well as the practical reality of different languages, different social customs and legal systems. If you fall into this category, keep in mind that:
- Noncitizen spouses, even those who are resident in the U.S., are not eligible for the marital deduction for gift or estate tax purposes.
- There are provisions that provide limited relief (like the expanded annual exclusion for noncitizen spouses, mentioned above), but you must follow the rules closely.
- Other country or countries involved may impose a gift or estate/inheritance tax, perhaps at a higher rate.
- U.S. tax laws and rules are designed to avoid double taxation, although they may not always work out perfectly. Don’t forget that there may be an applicable tax treaty that fills the gap.
- Your executor will need to locate and communicate with your beneficiaries and that can be hard if they do not speak the same language. Making lists of key people and their contact information and note the location of important documents.
- You can save time and hassle by locating professional advisors in both countries ahead of time.
For more information on U.S-Japan cross border estate planning in particular, you can see the 2013 article in the Trusts and Estates Magazine that I co-authored with a Japanese attorney and tax accountants. Although the article focused on U.S.-Japan planning, many of the practical tips are relevant to people dealing with other countries too.
Although estate planning necessarily involves thinking about death and incapacity – not fun subjects – it does not have to be impossibly daunting. The key is to tackle it in a methodical and orderly manner. Just like the Japanese year-end cleaning (or spring cleaning, in the American tradition), if you take one thing at a time and follow a plan, you can get it done. And just like cleaning, you’ll feel so much better once it’s all done.
The International Practice Group of Garvey Schubert Barer is a cross-disciplinary group of attorneys practicing in areas ranging from business transactions, immigration, maritime, government regulatory work, transportation and logistics, and estate planning. The group members include bilingual and multicultural attorneys who are well-versed in handling these subject matters in a cross-border context. The firm’s attorneys have been actively practicing in the international arena since the early 1970s.