News Briefings - Estate Planning

The following article was taken from the November 2008 issue of Estate Planner's Alert.

11/10/08 -- Extenders Act extends estate tax look-through rule for RIC stock owned by nonresident aliens through 2009

On October 3, 2008, President Bush signed into law H.R. 1424 (PL 110-343, including the "Emergency Economic Stabilization Act of 2008" ("2008 Economic Stabilization Act"), "Energy Improvement and Extension Act of 2008" ("2008 Energy Act"), and "Tax Extenders and AMT Relief Act of 2008" ("2008 Extenders Act"). Earlier in the day on October 3, the House by a vote of 263–171 approved the bill, and the Senate had previously passed the measure on October 1.

Here is RIA's Analysis of the 2008 Extenders Act's estate tax provision.

The gross estate of a nonresident alien (NRA) generally includes only property that is situated in the United States at the time of the decedent's death. Property within the United States generally includes debt obligations of U.S. persons, including the federal government and state and local governments, but does not include either bank deposits or portfolio obligations, the interest on which would be exempt from U.S. income tax under Code Sec. 871.

Stock owned by an NRA generally is treated as property within the United States if the stock was issued by a domestic corporation. However, stock of a regulated investment company (RIC) is not considered property within the United States in the proportion that, at the end of the RIC's tax year immediately before the date of the decedent's death, the assets held by the RIC are debt obligations, deposits, or other property that would be treated as situated outside the United States if they were held directly by the estate.

RIA observation: This rule is known as the "estate tax look-through rule." Under pre-2008 Extenders Act law, the estate tax look-through rule did not apply to estates of decedents dying after December 31, 2007.

New law. The 2008 Extenders Act extends the estate tax look-through rule for RIC stock owned by NRAs for two years, so that the rule applies to estates of decedents dying on or before December 31, 2009. (Code Sec. 2105(d)(3) as amended by 2008 Extenders Act § 207(a) Div C)

Effective date: Applies to estates of decedents dying after December 31, 2007 (2008 Extenders Act § 207(b)) and before January 1, 2010. (Code Sec. 2105(d)(3))

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