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Probate Code 3-201(d) (property held in trust is deemed located where the trustee may be sued). irs gov Income tax. TAX PLANNING VEHICLESAttorneys who do not practice extensively in estate planning traditionally build an estate plan upon a Will. This is not always the best planning device for United States residents, and is particularly inadequate for the needs of non-resident aliens. If a decedent does not reside in the state where the drafting attorney practices, the attorney should not prepare an estate plan to reflect the laws of the state where he practices, because the plan eventually will be governed by the laws of the state where the decedent is domiciled. irs gov Self-employment-tax. TrustsTransferring real property to a trust often avoids the administration of property by ancillary probate in the state where the property is situated. The trust may be revocable or irrevocable and may include any dispositive provisions desired by the client. In many states, including California and Virginia, personal property does not have to be transferred to the trust, since this property is not subject to administration in those states. irs gov Kansas-sales-tax. The prudent attorney will check the laws of every state where the client''s real property is located, since each state''s laws govern the situs of the property. A single trust should be sufficient, and most states will honor a trust provision that requires the instrument to be construed according to the laws of another state. Each state''s laws may differ regarding the administration of trusts, and the attorney should research the trust laws of every jurisdiction in which the client''s property is located. Some states, for example, Connecticut and Georgia, restrict the rights of a non-resident of the state or a corporation not authorized to do business in the state to serve as a trustee, and various states have widely disparate rules concerning the validity of a trust, the qualifications of a trustee, the exercise of discretionary powers, and other matters relating to the administration of trusts. Real property placed in a trust is still subject to federal estate taxes if the trust is covered under sections 2036 to 2038, which apply to any trust in which the grantor retains an interest, reversion, or power. Therefore, unless the trust is irrevocable and the grantor retains no interest in it, the trust, while avoiding probate administration, will not avoid the imposition of the federal estate tax. State inheritance taxes on trust property located in each state depend, of course, on the laws of that state with regard to situs. Foreign CorporationsSome have suggested that federal estate taxes can be avoided through the use of foreign corporations to hold United States property. D. C. Troxell, Aliens - Estate and Gift Taxation, 201-2nd Tax Management Portfolios (BINA 1980). Stock in a foreign corporation is deemed to be situated outside the United States and therefore is not includable in the gross estate of a non-resident decedent. A foreign corporation should hold property located only in the United States unless the tax laws of the domiciliary nation suggest similar advantages. Note, however, that section 2038 provides for the inclusion of property transferred by a decedent during his lifetime by trust or otherwise when the decedent has retained, alone or in conjunction with any other person, the power to revoke the transfer. If the decedent has the power to cause the United States property to be distributed to him by dividend, liquidation, or otherwise, the property may have to be included in his estate. See Estate of Sivan v. Commissioner, 247/ F. 2d 144 (2d Cir. 1957). CONCLUSIONPractitioners called upon to prepare estate plans for non-resident aliens should familiarize themselves with the federal estate tax laws that impose a tax on property left in this country by their clients, as well as the inheritance tax imposed by every state in which the property is located.
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