Transfer Tax Issues: Inheritance and Gift Tax

Non-resident shareholders have a potential problem.  If they die while directly owning the shares of a US corporation, the value of those shares is subject to the estate tax in the US.  There is a meager $60,000 exemption, then the tax of roughly 35% on the first $1mil, and 40% thereafter.  Therefore, it is advised to own the stock via a foreign corporation or a non-revocable foreign trust.

Ex. 1: A foreign founder dies while holding 20% stake in a US corporation.  The entity’s value is $15.3mil, thus the value of 20% is $3.06mil, ignoring any discounts.  The inheritance tax is calculated as follows: $3.06mil less $60,000 is $3mil of taxable amount.  The tax is $350,000 (35% on the first $1mil – approximate), plus $800,000 (40% on the excess) for the total of $1,150,000.  The heirs would have to sell part of the stock if there are no restrictions by the company or borrow against these shares in order to pay tax which is due 9 months after the date of death. 

If in the example above, Read more

Ask a question

Data security and privacy are our topmost priorities. Your personal details will not be shared publicly.

Required fields are marked *