Estate and Tax Planning ideas for 2012 for persons with US - India cross border issues

1. Presented By: Suzanne Weber, C.P.A, M.S.T, T.E.P
David Spence, Attorney at Law

3. • Tax is imposed on the transferor, not the recipient.
• Tax is based on the fair market value of assets.
• In calculating the tax, deductions are generally allowed for:
• Decedent’s Debts and Expenses of Estate Administration.
• Amounts Passing to a U.S. Citizen Spouse.
• Amounts Passing to a U.S. Charity.

4. For Citizen or Resident Individuals:
Highest
Gift Tax Gift Tax Gift and Marginal
Lifetime Annual Estate Tax Estate Tax Estate Tax
Year Exemption Exclusion Rate Exemption Rate
2010 $1,000,000 $13,000 35% Unlimited 35%
2011 $5,000,000 $13,000 35% $5,000,000* 35%
2012 $5,120,000 $13,000 35% $5,120,000* 35%
2013 ?? $1,000,000 $13,000 55% $1,000,000 55%
* Note: The Deceased Spouse’s Unused Exemption Amount (DSUEA) also carries forward to the surviving spouse.

5. Applicable to U.S. Citizens or Residents:
Annual
Gift Tax Annual Gifts or Annual
Lifetime Exclusion Testamentary Exclusion
Estate & Gift regardless of Bequests to Gift to
Tax Exemption donee identity U.S. Citizen Non-citizen
Year Amount or citizenship Spouse Spouse
2011 $5,000,000 $13,000 Unlimited $136,000
2012 $5,120,000 $13,000 Unlimited $139,000
2013 ?? $1,000,000 $13,000 Unlimited $139,000

6. Applicable to U.S. Situs Property
Annual Exemption for
Exclusion Gifts or Applicable
Lifetime Annual Gift to Bequests to a Gift &
Gift Tax Gift Tax Non-U.S. U.S. Citizen or Estate Tax Estate Tax
Year Exemption Exemption Spouse Resident Spouse Exemption Rates
2011 $0 $13,000 $136,000 Unlimited $60,000 18-35%
2012 $0 $13,000 $139,000 Unlimited $60,000 18-35%
2013 ?? $0 $13,000 $139,000 Unlimited $60,000 18-55%
But, what about bequests to a
non-citizen spouse?

7.  The Good: Allows testamentary bequests to non-citizen spouse to
qualify for the unlimited estate tax marital deduction.
 Requires all income to be paid annually to spouse for life.
 No person has power to distribute to anyone other than surviving spouse.
 The Bad: Must have a U.S. person as trustee. If QDOT assets exceed
$2 million FMV then trustee/co-trustee must be a domestic
corporation (in other words, a bank).
 The Ugly: Distributions from the QDOT in excess of annual income
are subject to withholding of estate tax at the highest marginal rate.


8. Now:
Estate Duty or Gift Tax None
Income Tax Indian Sourced
Wealth Tax 1% Nonproductive Assets in excess of
Rs. 2,50,000/1,50,000 of Ind/HUF
Repatriation $1 million per year limit on capital
From April 1, 2012- Direct Taxes Code:
NRI Residence Test • 60 current days + 365 in Previous
4 years
Corporate Residence Test Effective Management Test
Wealth Tax Expanded to Discretionary Trusts, limit
change to in excess of Rs. 50 crore

9. Tax:
Estate/ Gift Tax on Inheritance None
Income Tax Foreign Tax Credit offset Income Tax
Reporting Requirements:
Inheritance/ Gift over $100,000 Form 3520 w/ Tax Return
Financial Foreign Accounts Form TD F 90-22.1 FBAR
• Over $10,000 maximum value • Due June 30th
Specified Foreign Financial Assets: Form 8938 due annually with tax
• Max value $75,000/$150,000 S/J return
• Year end value $50,000/$100,000 S/J

10.  For 2011: Specified Individuals
 U.S. Citizen
 Resident Alien
 Non Resident (NR) Electing to be Resident
 Resident alien electing under treaty to be NR
 For 2012: Specified Domestic Entities
 Is closely held by specified person
 Hold specified foreign financial assets over $75k at anytime during the
year or $100k at year end.
 Either:
 50% of gross income or assets are passive
 10% of gross income or assets are passive and was formed to
avoid reporting.

11. 1) Financial Accounts maintained by a Foreign
Financial Institute (FFI).
 FFIs include: Mutual Funds, Foreign Private Equity
Fund, etc…
2) Other Specified Foreign Financial Assets (not
held in a FFI, if held for investment)
 Stock issued by a foreign corporation
 Capital or private interest in a foreign partnership
 Note bond, or other indebtedness issues by a
foreign person
 An interest in a foreign trust or estate.

12. Form Basic Compliances
90.22-1 •Over $10k at any point in time
•Signature authority- both individual & company
5471 •Controlled Foreign Corporation at least 30 days
•Passive officer when a 10% stock change
926 Transfers to Controlled Foreign Corp. (CFC)
5472 25% or more Foreign Ownership, Sent separately
8621 Passive Foreign Investment Company
8858 Foreign Disregarded Entity/ Form 8832
1120F Permanent Establishment/ Trade or business in
U.S.

13. Form Penalty Statute of Limitations (SOL)
90.22-1 •Non-willful: $10,000 6 years
•Willful: Greater of $100,000 or
50% balance
•Criminal: up to $500,000/ 5 yrs
8938 $10,000 each •6 yrs after filing if < $5,000
omitted
•Entire return open for 3 yrs
after filing return with form
3520 (Gift) 5% of Gift a month up to 25% 3/6 yrs after filed
3520 (Trust) 35% of transfer received 3/6 years after filed
8621 No direct penalties Entire return open for 3 years
after filing return with form
5471 $10,000 Each Entire return open for 3 years
after filing return with form
5472 $10,000 Each Entire return open for 3 years
after filing return with form
8858 $10,000 Each Entire return open for 3 years
after filing return with form

14. Name Year
Off Shore Voluntary Disclosure 2009
Initiative (OVDI)
Off Shore Voluntary Disclosure 2011
Initiative (OVDI)
Off Shore Voluntary Disclosure Current
Initiative (OVDI)
Foreign Account Tax Compliance 2013
(FATCA)

15.  Intangible Assets
 Stocks, LLC & LP interests, patents, copyrights, etc.
 General rule—intangibles are located where the giver is
located.
 Tangible Assets
 Real estate, equipment, automobiles, jewelry, artwork, etc.
 General Rule—tangible assets have “situs” where they are
physically located.
 But, what about cash, currency, bank accounts, etc.?

16. Owned by a Non-resident, Non-citizen
U.S. U.S. Company
Personal Business Foreign Stock and
U. S. Bank Bank Bank Other U.S. U.S. Real Non-U.S.
Tax Accounts Accounts Accounts Intangibles Estate Real Estate
US Gift Non-taxable Non-taxable
Tax Taxable Taxable (Sometimes) (generally) Taxable Non-taxable
US Estate Non- Taxable
Tax taxable Taxable Non-taxable (generally) Taxable Non-taxable
BEWARE!
The above table reflects general rules. Actual determination
of taxability can be heavily fact-specific.
PLEASE CONSULT YOUR LEGAL COUNSEL OR CPA!

17.  Cash Transfers from India
 Indian restrictions on the ability of families to transfer cash out
of India can create U.S. tax planning problems.
 What about U.S. stock?
 Foreign Trustees
 When selecting a successor trustee/executor, a U.S. person is
preferable for a number of reasons:
 U.S. income tax issues.
 U.S. reporting issues
 Logistics
 Foreign Charities

18.  The U.S. Estate and Gift Tax Can Apply in
Situations One Would Not Expect.
 Cross-border Families and Cross-border
Wealth Create a Myriad of Tax Traps but also
Opportunities!
 When you have a tax situation in one country,
you have to look at how it affects tax in the
other country.
 In today’s environment, you should over
comply and elect protective compliances.

19. Admitted To Practice:
Supreme Court of California
United States Tax Court
United States District Court for the Northern District of California
Affiliations:
State Bar of California
• Tax Section
• Estate and Trust Section
• Business Law Section
Palo Alto Area Bar Association
Society of Trust & Estate Practitioners
Education:
ATTORNEY AT LAW B.S. (Accounting), Brigham Young University
OFFICE PHONE (650) 813‐9700 EXT. 211 M. Acc. (Taxation), Brigham Young University
dspence@rroyselaw.com J.D., Brigham Young University
David Spence heads the Estate, Trust, and Wealth Strategies practice for the Royse Law Firm. David’s practice focuses in the areas of
taxation, estates, trusts and other private wealth structures used in the efficient management, protection, and transfer of wealth to
succeeding generations. David’s clients are international and domestic individuals, families, family businesses and charitable organizations.
Over the last twenty‐five years, David has practiced with prominent law firms, international accounting firms, and financial institutions in
Silicon Valley and San Francisco.
David has counseled some of the largest and most complex estates in the world. David has represented clients before various courts and
administrative agencies of the federal and state government, including the United States Tax Court and the Internal Revenue Service.
Currently, David is also an adjunct professor with the Master of Science in Taxation (MST) program in the Lucas Graduate School of Business
at San Jose State University, where he teaches Taxation of Estates and Trusts.
For more information about Royse Law Firm, PC or David Spence, please email: dspence@rroyselaw.com

20. Affiliations:
California CPA Society
Society of Trust & Estate Practitioners
Education:
BS San Jose State University
MST Golden Gate University
Graduate MST Golden Gate University
CERTIFIED PUBLIC ACCOUNTANT
OFFICE PHONE (408) 931‐6201
SWEBER@WEBERANDCOMPANYCPA.COM
Susan Weber is a principal of Weber and Company, Inc. a Certified Public Accounting and business consulting firm. Susan has over 25 years
of experience in public accounting. She was previously with Armstrong, Bastow and Potter which merged with KPMG. Susan also previously
founded the public accounting firm Weber, Sanford and Company. Her area of professional concentration is International Tax, involving
planning and compliance for businesses, individuals, estate and trust. She also has many years experience in the Real Estate and high tech
industry.
Susan has successfully represented clients with IRS controversy including international tax issues involving entity classification, transfer
pricing, passive foreign investment companies and the 2009 and 2011 offshore amnesty. Susan’s clients range from entrepreneurs, to
multinational companies, from Silicon Valley to around the world.
For more information about Weber and Company, Inc. or Suzanne Weber, please email: sweber@weberandcompanycpa.com