South Florida is luring many residents from across the globe who must navigate unique tax and estate-planning issues if they wish to invest in the area's booming real estate market, insurance adviser Richard Bernstein told Newsmax TV.
"A lot of foreign money is coming in and it shows that because of the problems that are happening in the world that the rest of the world feels safer in America with American assets than they do in their own country," Bernstein, CEO of Richard S. Bernstein & Associates, Inc., a West Palm beach insurance adviser for high net worth business leaders, families, businesses, municipalities and charitable organizations, told "Newsmax Now."
"You see a lot of money coming from Central and South America, from Europe, from China, coming into Florida. And they're concerned not necessarily how much money they're going to make on their principal, but making sure their principal is safe and going forward," he said.
"People are trying to get money out of certain countries they're concerned about.People are afraid to travel now, which it never used to be that way. You see people from foreign countries moving assets out," he said.
But there are other challenges, which can easily be minimized with early and appropriate planning.
For example, under U.S. tax law, the estate of an individual who is neither a citizen nor a domiciliary of the United States (or a “foreigner”) is subject to U.S. estate tax with regard to those assets located in the United States at the time of the foreigner’s death.
Unlike U.S. persons whose estates enjoy a fairly large exemption against U.S. estate tax (currently $5,430,000, increasing to $5,450,000 in 2016), the exemption amount for the estate of a foreigner is only $60,000.
With a maximum estate tax rate of 40%, this means that even those foreigners who own a modest amount of U.S. assets at the time of their death can leave behind a large estate tax bill.
Foreigners need to ensure that proper planning is done to protect against the imposition of U.S. estate tax, Bernstein advised.
Unfortunately, there is no one-size-fits-all approach in international estate planning. For instance, when it comes to structuring investments in U.S. real estate, although minimizing or avoiding exposure to estate tax is important, income tax consequences must also be considered in order to reach a tax-efficient solution.
Matters get even more complicated if the foreigner has U.S. children who will inherit the U.S. real estate, as a holding structure that makes sense for a foreigner could be disastrous for a U.S. person.
With all of these complex issues facing them, foreigners may find that purchasing life insurance provides a simple solution. The proceeds of life insurance on the life of a foreigner are not subject to U.S. estate tax and can provide liquidity to pay any U.S. estate tax which may be due.
Life insurance also provides U.S. income tax benefits, as the cash value that accumulates inside the policy is typically not subject to U.S. income tax. Additionally, the beneficiaries of the life insurance policy are not subject to U.S. income tax upon their receipt of the proceeds from the policy.
The purchase of life insurance can benefit a foreigner in more ways than one and should be considered as a potential solution to the unique tax and estate planning issues facing foreigners with U.S. ties
But all the helpful advice in the world won't make a difference if you don't actively start planning now, often the biggest mistake that most people make.
"You need to start saving instead of spending. They're not saving enough money, they're not putting enough money away for themselves and for their family and for their children and we're living longer," said Bernstein, who also suggested planning long-term in-home healthcare for yourself and spouse.
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