CEA International Estate Considerations 2 — Questions and Answers
Question 1: Which US tax form must an executor file when a US citizen decedent held foreign financial accounts exceeding $10,000 at any point during the year?
- Form 706-NA
- FinCEN 114 (FBAR) (Correct answer)
- Form 3520
- Form 8938
Correct answer: FinCEN 114 (FBAR)
FinCEN 114, known as the FBAR, must be filed when aggregate foreign financial account balances exceed $10,000 at any time during the calendar year.
Question 2: A Canadian citizen who is a US resident for tax purposes dies owning property in Canada. How is this property treated for US estate tax purposes?
- Excluded because it is located in Canada
- Included in the worldwide gross estate (Correct answer)
- Taxed only under Canadian law due to the tax treaty
- Exempt up to the annual exclusion amount
Correct answer: Included in the worldwide gross estate
US residents for tax purposes are subject to US estate tax on their worldwide assets, including foreign real property.
Question 3: What is the primary purpose of a foreign asset protection trust (FAPT) in estate planning?
- To avoid US income tax on offshore earnings
- To shield assets from potential creditors while retaining some settlor benefits (Correct answer)
- To eliminate estate tax on foreign real property
- To consolidate inheritance across multiple jurisdictions
Correct answer: To shield assets from potential creditors while retaining some settlor benefits
FAPTs are established in favorable offshore jurisdictions to protect assets from creditors while potentially allowing the settlor limited access.
Question 4: Under the US-UK estate tax treaty, which principle generally determines which country has primary taxing rights over real property?
- The situs (location) of the property (Correct answer)
- The citizenship of the decedent
- The domicile of the beneficiaries
- The currency in which the property is valued
Correct answer: The situs (location) of the property
Under most US estate tax treaties, real property is taxed primarily by the country where it is physically located (situs rule).
Question 5: A US citizen client inherits €500,000 from a German relative. What is the US income tax treatment of this inheritance?
- Subject to ordinary income tax on the full amount
- Excluded from gross income under IRC Section 102 (Correct answer)
- Subject to capital gains tax at the preferential rate
- Taxed as foreign passive income with a 30% withholding
Correct answer: Excluded from gross income under IRC Section 102
Under IRC Section 102, inheritances received by US persons are generally excluded from gross income, regardless of the country of origin.
Question 6: Which document is used to report ownership interests in a foreign trust or receipt of gifts/bequests from foreign persons exceeding applicable thresholds?
- Form 709
- Form 3520 (Correct answer)
- Form 5471
- Form 8865
Correct answer: Form 3520
Form 3520 is used to report transactions with foreign trusts and large gifts or bequests received from foreign persons.
Question 7: A non-resident alien decedent owned US stocks worth $1.5 million at death. Which form is used to report the US estate tax liability?
- Form 706
- Form 706-NA (Correct answer)
- Form 1040-NR
- Form 8960
Correct answer: Form 706-NA
Form 706-NA (United States Estate Tax Return for Nonresident Not a Citizen) is filed for non-resident alien decedents with US-situs assets.
CEA International Estate Considerations 2
Which US tax form must an executor file when a US citizen decedent held foreign financial accounts exceeding $10,000 at any point during the year?