A common scenario we see is where a foreign national purchased a property in the United States. If you are not a citizen of the U.S. and you don’t reside in the U.S. that means that you are a foreign national. It also means you will have to pay Estate Taxes.
What are Estate Taxes for Foreign Nationals?
Death Taxes essentially. If you pass away your estate tax exclusion is $60,000. That means as a foreign national you will not be taxed on the first $60,000. Yes, that is right you will have to pay taxes for everything that is worth more than $60,000 and is a local asset in the U.S. Talk to an international tax attorney or accountant to find out more about your specific situation.
Example:
A 45-year-old Brazilian investor buys a property in the U.S. for $250,000. He loves his investment because he can generate $24,000 per year in rent. And has no intention of selling the property.
What happens to my property if I pass away?
If and when you pass away, your family could owe a significant amount in taxes. Let’s say at death the market value of the property is $370,000.
The IRS gives your family 90 days to pay estate taxes on the property. Your kids and spouse have to quickly sell the property, which causes them to get less than what they normally would get. Let’s say they sell it for $350,000.
What are the estate taxes on a property worth $350,000?
Your family will have to pay %34 in taxes, after excluding $60,000.
So if your family sells at $350,000, they get $251,400. The IRS gets $98,600.
The Solution: Foreign National Real Estate Tax Protection
The Investor buys a permanent insurance policy for $98,600. The approximate cost of the life insurance would be $85/month.
At death the wife and family do not have to sell the property.
They present the insurance company with a death certificate, and the family will receive a tax-free check for $98,600. Then they send this check to the IRS to pay for the estate taxes.
Family gets a property worth $370,000 and rental income of $24,000 per year. The IRS gets $98,600 from the Insurance Company.
As you can see there is a huge benefit for having an insurance policy as a foreign national.
Which one would you prefer, paying $85/month or $98,600?
This problem becomes even greater if there is a mortgage on the property. Also you depending where you are from the life insurance companies will give you different ratings. How will my country be treated for life insurance?
If you have questions leave us a comment or email us at [email protected]
You need to work with an insurance brekor who is used to dealing with these issues. Foreign travel and foreign citizenship are specialized life insurance risks. It will depend on your citizenship, how often and how long you visit, what type of visa you have here, etc. If you are approved without excluding certain territories, it will cover you regardless of where you are.