The US federal estate tax began applying on US assets of Israeli citizens on January 1, 2011. The tax can reach a maximum of 45% on the transfer of a deceased person's assets to his or her heirs, based on the distribution of the assets to them.
In 2001, the US passed a law to gradually cut the maximum estate tax rate between 2002 and 2009. The law stipulated that the exemption from estate taxes for non-US citizens would be cancelled at the end of 2010, and that the maximum rate would reapply.
S. Friedman & Co. Advocates partner Adv. Harel Locker said, "The estate tax is levied on foreigners with tangible assets in the US, and not only on Americans. For example, Israelis who buy real estate in the US, should they die, their children will pay the federal estate tax, which can reach 45%. Belying common belief, these taxes apply to foreigners with tangible assets in the US, and not only on Americans. If a property owner dies, his heirs will face a heavy estate tax."
Locker says that Americans have received a huge tax cut, which does not apply to foreigners. In 2011-12, the tax cut will exempt the estate tax on estates of up to $5 million, and the threshold will drop to $3.5 million in 2013. Locker says that, in contrast, the threshold for non-US citizens and residents is $60,000.
Locker says that the way to avoid the estate tax is to set up a foreign company or trust. "A foreign company is not liable to the US estate tax when its owner dies. On the other hand, death exposes the company to a higher capital gains tax of 35% at the time of sale, compared with the 15% tax rate on an individual. Nevertheless, it is possible to save money if the maximum tax rate applies on the assets."
Published by Globes [online], Israel business news - www.globes-online.com - on January 18, 2011
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