Estate Planning Newsletter

• Responsibilities of a Trustee
  Every trust must have a trustee to properly administer the elements of the trust. Trustees can be individuals, financial institutions or even organizations. A trustee follows the precise instructions of the trustor (or the... Read more.
• Calculating Fair Market Value for Charitable Donations of Property
  The U.S. government has long encouraged citizens to contribute to charity. One method of encouraging philanthropic giving is the allowance of deductions from income for federal tax purposes for donations to “qualified”... Read more.
• Tax Considerations of Long-Term Care Insurance
  People are living longer, but for many a reality of aging is that at some point they are unable to care for themselves. The costs of retirement homes and in-home care are rising, generating concerns for many on how to pay for the cost... Read more.
• Getting Rid of an Executor or Administrator
  State laws and procedures typically govern the administration of an estate. For this reason, the law varies among jurisdictions. However, in 1969, a “Uniform Probate Code” (Uniform Code) was introduced. Since that time,... Read more.

• Improper estate planning can lead to familial conflict
• 3 Worst Estate Planning Mistakes and How to Avoid Them
• Stan Lee’s tangled web of estate planning and how to avoid this mess
• The Top Estate Planning Mistakes Divorcing Women Make
• Estate Planning: A Family Affair

Using Non-U.S. Assets to Fund Charitable Bequests

Taxpayers who make contributions to qualified charitable organizations are entitled to a tax benefit in the form of a charitable deduction on their income taxes. However, the issue becomes more complex when a non-U.S. citizen makes a bequest to a qualified charitable organization with non-U.S. assets, and then claims a charitable deduction.

Proportional Deduction for Charitable Bequests Paid With Non-U.S. Assets

The Tax Court has held that, in order to deduct charitable bequests in full upon filing a United States Estate Tax Return, the bequests must have been funded from property subject to the U.S. estate tax. If the bequests are funded with property located outside of the U.S., then the taxpayer will only be entitled to a proportional deduction. The deduction is calculated by dividing the value of U.S. assets by the value of worldwide assets, multiplied by the amount of charitable bequests.

In one case, a Canadian citizen had assets worth $516,268 in the U.S. and more than $100 million in Canada. His will provided for charitable bequests to Canadian-registered charities, and when he died the bequests were paid out of his Canadian funds. His estate filed a United States Estate Tax Return and claimed a charitable contribution deduction of approximately $312,840. However, the IRS only allowed a limited charitable deduction of $1,615 based on the following formula: ($516,268/$100 million) x $312,840 = $1,615.

U.S.-Canada Treaty on Income and Capital

Where the charitable bequest at issue is made by a Canadian resident who owns property in the U.S., it is important to consider the U.S.-Canada Treaty with respect to taxes on income and capital as amended by the (third) protocol in 1995. Some relevant provisions of the Treaty include:

• Relief from double taxation for Canadians who had either retired to the U.S. or owned $60,000 or more of property in the U.S.
• Credit for Canadians against U.S. estate tax for up to $600,000 of U.S. assets
• Application of U.S. estate taxes only to U.S. real estate assets where value of a Canadian’s worldwide gross estate is no more than $1.2 million

Still, the Treaty also requires that charitable bequests be funded from property subject to the U.S. estate tax in order for the taxpayer to file for a full deduction.

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