Owning property, real, personal, or intangible, as a non-California with the said property in California, or as a Californian, owning property, real, personal, or intangible outside of California presents multi-jurisdictional issues.
The process of creating a comprehensive estate plan including asset protection requires coordination with the laws of various states and foreign jurisdictions, as well as abiding by the U.S. tax and reporting laws that specifically apply to individuals with international concerns.
California’s income tax is among the highest in the country and the income tax authority (Franchise Tax Board or “FTB”) is notorious for vigorously pursuing any state income taxes (or other fees) that may be owed, whether by individuals, businesses, or trusts. Where appropriate, our firm will form an entity such as an LLC to operate outside of California, or create a trust in another jurisdiction where the trustee and (at least some of the beneficiaries) are not in California, thereby reducing annual tax burdens.
For our clients, our firm considers Delaware where a reputation as a business-friendly state makes it an ideal place for formation of legal entities. Delaware courts are among the speediest and most predictable in the nation when it comes to resolving business and trust disputes. Their legislature adopts and modernizes laws faster than most other states, creating a business-friendly, trust-friendly environment. And, Delaware has favorable tax laws.
Other states, such as South Dakota and Nevada, have sought to emulate Delaware, particularly in the context of trusts. In addition to the favorable tax laws, these states offer asset protection and privacy superior to those generally available in California.
It is critical that U.S. citizen or resident who owns foreign assets understand the reporting requirements. In an effort to curb international money laundering and tax evasion, the U.S. government has cast a very broad net that tends to snag many people who were never the intended target.
Aside from the reporting requirements for those owning assets abroad, our clients must also take into account the laws of international jurisdictions in which assets or family members are located. Where appropriate, our firm works with advisors in other jurisdictions to ensure that the U.S. estate plan is in harmony with international laws.
For those who are moving to or purchasing property in the U.S.A., specific advice is recommended. For example, on becoming a U.S. citizen or resident, the client’s worldwide assets will become subject to the U.S. estate and gift tax system, and the client will be required to report worldwide income.
If a client is not a citizen or resident of the U.S., purchasing U.S. real estate in one’s individual name can have the unintended consequence of subjecting the property to U.S. estate and gift taxes, taxes that can be avoided with proper planning.