Gifting involves receiving something for nothing, In certain situations, the US government requires gift tax returns in order to assess whether there are any taxes owed.

Gift Tax and Estate Planning for US Expats

When does the gift tax not apply?

• Gifts between spouses when both are US citizens.
• Payments made on behalf of another person for medical and educational expenses are not taxed; however, payments have to be made directly by the gifting person. This is a great tax planning idea for grandparents.
• A US person makes a gift to any individual up to $15K per year (to as many individuals as one likes) – exclusion limit is for 2018.

When a person makes a gift that is outside of the above exclusions, the gift tax rules and IRS tax filings apply. Let’s take a look at a couple of examples:

• US citizen gifts to his/her non-US citizen spouse. A gift up to $152K (during one’s lifetime) is allowed without triggering the gift tax rules – exclusion limit is for 2018. If one exceeds the limit, then a gift tax return must be filed (doesn’t mean you will owe taxes).
• A foreigner gifts a US citizen. Any gift above $100K from a foreign person (non-resident alien) triggers a filing requirement. Specifically, one must file Form 3520 with one’s tax return.

Estate Tax Basics

Estate taxes have to do with assets left behind upon one’s death. Starting 2018 (as a result of Tax Reform), US citizens can leave behind $11.2 million before being subject to estate tax (double this amount, if married). However, some US expats are affected by exceptions to the general rules.

Similar to gift tax, a US citizen can bequeath an unlimited amount to a US citizen spouse. However, the rule for a non-US spouse recipient (including permanent residents) is different.

• US citizen bequeaths to his/her non-US spouse. An inheritance up to $152K is exempt; however, any amount above the limit is not exempt, and counts toward the $11.2 million. The $152K is an aggregate figure that totals amounts gifted during the lifetime of the deceased.
• A non-US spouse is the beneficiary of a life insurance policy. The $152K limit includes any proceeds from a life insurance policy. Therefore, one course of action may be to put the policy under the name of the non-US spouse, so that he/she is both the beneficiary and the policyholder (the US spouse is the insured).

The subject of gift tax and estate planning is probably more complicated than it should be. While most people are not subject to taxation, there are some filing requirements, which we’ve already touched upon in this article.

For general information on US expat taxation, please read: US Taxes for Americans Living Abroad – Ultimate Guide.