Fifty-Fifty Forever or Until Death Do Us Part: U.S. Estate Tax Surprises for Community Property Couples

Volume 12 No 6    /    Read Article

By Neha Rastogi

When a married couple resides in a civil law jurisdiction, ownership of marital property typically is governed by community property principles – rules that automatically characterize most assets acquired during marriage as jointly owned, regardless of the way ownership is titled. While these regimes provide clarity in a wholly domestic set of facts, they create significant uncertainty when a married couple has cross-border ties, particularly involving the U.S. The challenges become especially pronounced where one spouse is a U.S. citizen subject to U.S. Federal income, estate, and gift taxation on worldwide assets, while the other spouse is a nonresident, noncitizen (“N.R.N.C.”) individual for purposes of U.S. Federal income, estate, and gift taxes whose tax exposures typically are limited to U.S.-source income and U.S. situs property. In her article, Neha Rastogi addresses potentially problematic fact patterns for the married couple, including (i) ownership of life insurance, (ii) F.B.A.R. reporting, (iii) entity characterization of the ownership interests in a domestic L.L.C., and (iv) basis step-up for a surviving spouse when the other spouse’s lifetime comes to an end.  See more →