Tax Planning for Foreign Nationals using U.S. life Insurance.
There are tremendous benefits with U.S. life insurance as a tax planning tool for foreign nationals. Take my story as an example. After my grandfather passed, a sizable portion of his estate was supposed to be transferred to my father. Although it did occur, I can still remember the look on my father’s face when he realized almost 40% of his inheritance would be consumed by estate taxes.
As a citizen and resident of India my grandfather also owned significant real estate assets in the United States. Unfortunately, he never took the time to put his financial affairs in order. As a result, my family learned a very valuable lesson that day on the importance of financial planning, more specifically tax planning.
Tax Planning for Foreign Nationals
Many Non-U.S. citizens are not aware of the estate taxes that may arise by holding significant assets in the United States. Without a suitable estate plan in place, individuals with high value U.S. estates are exposed to tax rates as high as 40%. The tax burden can be much higher for Non-U.S. citizens due to less favorable tax provisions.
For example, the unlimited marital deduction allowing spouses to transfer assets tax free only applies if both spouses are U.S. citizens. As of 2018 the lifetime estate tax exemption is only about $60,000 where Non-U.S. citizens and Non-residents are concerned.
U.S. Life Insurance Helps Minimize Estate Taxes
There are several tax planning strategies that can be implemented to effectively reduce estate taxes. For example, a commonly known yet underutilized strategy is the use of life insurance as a tax planning tool for foreign nationals.
A life insurance policy is one of the most effective and relatively simple means to reduce estate taxes. First, it provides the liquidity required to cover any estate tax obligations without having to sell existing assets or costly loans. The value of the life insurance policy on the life of a foreign national is not included in the gross estate. Therefore it is not subject to estate tax.
Non-U.S. citizens with high U.S. estates should consider U.S. life insurance as a way to protect their financial legacy and ensure a smooth transfer of wealth.
Learn more about U.S. life insurance for foreign nationals, Click here!