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Potential 40 Percent Inheritance Tax on Foreign Assets

Posted on: December 14th, 2016
inheritance taxSpeculation of forthcoming tax law changes under the Trump Administration has been a prime topic of financial talks and news media since Election Day. However, another tax matter currently under review would impose an inheritance tax on foreign assets for some taxpayers.

Heirs domiciled in the United States who receive offshore inheritances from a covered expatriate would be required to pay an inheritance tax of up to 40 percent. The proposed provisions apply this tax to any individual domiciled in the United States, whether they are a U.S. citizen or not. The tax would be applied to asset transfers regardless if distributions are from a trust, if made by a covered expatriate.  The proposed tax would apply to:
  • Foreign trust distributions
  • Gifts of offshore assets
  • Foreign asset bequests
As of this writing two exceptions to this tax rule apply:
  • Asset transfers to a spouse when a marital deduction is applied
  • Assets from gifts or bequests that were included on a United States gift tax or estate tax return, where any tax due that was paid and the return was filed by the filing deadline
The possible changes to the inheritance tax are implemented through proposals under Internal Revenue Code Section 2801. For clarification and questions on possible implications – contact one of our tax attorneys. To learn about updates to this tax code, subscribe to our tax law blog.
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