The concept of “domicile” is critical in determining U.S. estate tax liability as property located outside of the U.S. and owned by a non-resident, non-US citizen is not subject to U.S. gift and estate taxes. For estate tax purposes, whether the decedent was a “resident” of the U.S. will be determined based on their domicile, rather than by reference to the definition of “resident” (in Internal Revenue Code section 7701(b)) that is used for income tax purposes.
For estate tax purposes, the U.S. Treasury Regulation section 20.0-1(b)(1) defines “domicile” as “living within a country with no definite present intent of leaving. Determining domicile for estate and gift tax purposes is fact specific. Once a non-citizen establishes the United States as their domicile, they remain a United States domiciliary until a new domicile is established. If there is doubt as to the location of domicile, there is a rebuttable presumption that the decedent was domiciled within the country where he or she resided.”
A decedent can be “domiciled” in the U.S. for estate and gift tax purposes if they lived in the U.S. and had no present intention of leaving. However, a decedent may have been a tax resident of a jurisdiction without being domiciled there – they may have lived and worked in Jurisdiction B for a period of time, intending to eventually return to their “home country”, Jurisdiction A. The U.S. Treasury Regulation 20.0-1(b)(1) addresses this, stating:
“A person acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of later removing therefrom. Residence without the requisite intention to remain indefinitely will not suffice to constitute domicile, nor will intention to change domicile effect such a change unless accompanied by actual removal…”
The following factors have been identified in U.S. case law as being relevant to determining domicile and require careful consideration when determining a decedent’s domicile:
• place of birth and citizenship
• green card status
• intention to live permanently in the U.S.
• time spent in the U.S.
• family ties
• statements in legal documents (such as Wills and trusts)
• location of residential property
• ties to other countries
• location of business interests
• address listed on tax returns and whether filed as a resident or non-resident
• location of clubs, church affiliations, bank accounts and pets
• the address used for voter registration, car registration, driver licenses, newspaper subscriptions
Once the IRS has established a decedent’s domicile (and in turn, their residency), the IRS can then determine the decedent’s estate tax liability by reference to any applicable international estate tax treaty.
Our upcoming whitepaper International Estate Planning for U.S.-Australia cross-border clients which is due for publication in April 2020 provides an in-depth analysis of international estate planning issues.
If you have any questions, please contact:
Senior Tax Advisor
U.S. Australia Tax Desk