Gift and Estate Planning for Foreign Nationals

1. Gift and EstatePlanning forForeign Nationals

2. This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely solely on their own independent advisors regarding their particular situation and the concepts presented here.

3. Foreign Nationals • Expanding global economy • Need for planning • Impact of U.S. transfer taxes

4. Defining the Market Source: U.S. Census Bureau, 2005-2007 American Community Survey *The foreign-born population includes anyone who was not a U.S. citizen or a U.S. national at birth.This includes respondents who indicated they were a U.S. citizen by naturalization or not a U.S. citizen. (U.S. Census Bureau, American Community Survey 2007 Subject Definitions).

5. Planning Opportunities A survey of recent immigrants to the U.S. with a net worth of $10 million or more found: Source: “Clueless,” Trusts and Estates, December 2003

6. Defining the Market Foreign national gift and estate tax planning targets: • Non-U.S. citizens • Resident Aliens (RA) • Nonresident Aliens (NRA) who own property situated in the U.S. • U.S. citizen married to a non-U.S. citizen

7. Resident vs. Nonresident Alien Classification of foreign nationals • For U.S. tax purposes, foreign nationals areclassified as: • Resident alien (RA), or • Nonresident alien (NRA) • Foreign nationals taxed differently based on residency status

8. Primary Planning Concerns for Foreign Nationals U.S. Gift & Estate tax issues • NRA obtains U.S. resident status • Marriage to non-U.S. citizen, whether RA or NRA • Transfer of property by an NRA to take advantageof difference between gift and estate tax rules • Liquidity to pay U.S. estate taxes

9. Gift and Estate Taxes: Determining Domicile • Resident or nonresident status for U.S. gift and estate tax purposes determined by location of individual’s domicile • “Domicile” is defined as the location at which a person lives, even if for a brief time, but also at which the person intends to remain indefinitely • Person with domicile outside of U.S. is NRA • U.S. domicile results in RA status • Domicile test is subjective test based on one’s intent

10. Estate Tax Comparison: RA vs. NRA *Available to non-U.S. citizen spouse if assets are transferred to a QDOT ** Intangible property includes stock in a U.S. corporation and interest in a U.S. partnership

11. Assets Worldwide Can Be Included Example: Maria, a Mexican Citizen with a Green Card • $10 Million in U.S. Assets • $15 Million in Mexican Assets • $5 Million in Canadian Assets What is the value of her estate for U.S. tax purposes?

12. Estate Tax Comparison: RA vs. NRA *Available to non-U.S. citizen spouse if assets are transferred to a QDOT ** Intangible property includes stock in a U.S. corporation and interest in a U.S. partnership

13. Why Planning Is Important: NRAs Example: Ricardo Montalbano,Brazilian national, Nonresident Alien • $10 million in U.S. property and investments • No advanced planning • Death in 2011 Gross Estate Taxes ($5,140,800) Less Credit 13,000 Net Estate Taxes ($5,127,800) Net U.S. Assets $4,872,200 Estate Shrinkage = 51.27%

14. Estate Tax Comparison: RA vs. NRA *Available to non-U.S. citizen spouse if assets are transferred to a QDOT ** Intangible property includes stock in a U.S. corporation and interest in a U.S. partnership

15. Nonresident Aliens:Taxation of U.S. Situs Property Overview of general rules • NRAs are subject to U.S. gift and estate taxes for transfer of only those propertiesdeemed to besituated (situs) in the U.S. • Situs rules differ depending on type of property being transferred • Scope of situs rules for gift taxes much narrower than for estate taxes

16. Gift Tax comparison: RA vs. NRA * Tangible property includes cash, jewelry, paintings, automobiles

17. Nonresident Aliens: U. S. Gift and Estate Situs Rules * A gift of a life insurance policy on oneself may be subject to the IRC §2035 look back rule, and therefore may be subject to estate taxes if included within the decedent’s estate.

18. Planning for the NRA: Example Example: Ricardo Montalbano, Brazilian national, Nonresident Alien • Single • $10 million in U.S.-based property and investments Planning strategies: • Consider transferring commercial real estate into a business entity, such as family limited partnership, LLC, or C corporation • Gifting shares of business entity as appropriate • Purchasing life insurance through a grantor trust to assure estate liquidity for non-gifted assets

19. Nonresident Aliens: U.S. Gift Taxes Planning strategies that may minimize gift taxes: • Remove tangible personal property from U.S. prior to gift • Convert tangible property into intangible property Examples: • U.S. cash deposited to a U.S. bank • Contribute tangible property to a corporation or partnership, then gift intangible interest of corporation or partnership

20. Nonresident Aliens: U.S. Estate Taxes Planning opportunities: • Minimize NRA’s U.S. estate by taking advantage of differences between gift and estate situs rules • Example: shares of a U.S. corporation should be gifted before client’s death

21. Qualified Domestic Trusts (QDOT) Creating a QDOT DistributionLimitations Instances whenestate tax applies

22. Qualified Domestic Trusts (QDOT) • Can be established in the estate documents of decedent • Can be created by surviving non-citizen spouse within nine months of decedent spouse’s death • Property transferred can qualify for the unlimited marital deduction thereby deferring estate taxes. • Qualification requirements Creating a QDOT

23. Qualified Domestic Trusts (QDOT) Creating a QDOT • Not subject to estate tax if: • Distribution of trust income paid tonon–citizen spouse annually • Principal distributions for “hardship” • Spouse becomes U.S. citizen DistributionLimitations

24. Qualified Domestic Trusts (QDOT) Creating a QDOT • Subject to estate tax if: • Distributions of principal will result in estate taxation • If the QDOT fails to meet requirements • Distributions of principal, and property remaining in the QDOT at spouse’s death DistributionLimitations Instances whenestate tax applies

25. QDOT Planning Alternative Gifting Program using “Super Annual Exclusion”: • Planning option—utilize a gifting program to non-U.S. citizen spouse • $134,000 annual exclusion to gift funds to non-U.S.citizen spouse to purchase life insurance policy

26. Annual Exclusion:TransWare Illustration Example: Andrea: U.S. Citizen Andrea’s Husband: Non-U.S. Citizen TransACE® Andrea, age 68 – Standard NS 15-pay Premium: $ 134,000 Death Benefit: $3,793,000 • Year Net Death Benefit Internal Rate of Return • $3,793,000 18.34% • 20 $3,793,000 4.84%

27. Taxation of Life Insurance Death Benefits • Insurance proceeds on life of NRA are not U.S. situs property and not included in decedent’s gross estate • NRA can own life insurance policy on own life, and death benefits will not be subject to income or estate taxes • Life insurance can provide liquidity to pay estate taxes on NRA’s U.S. situs property

28. Nonresident Aliens and Life Insurance Income taxation of withdrawals and loans* • Income, such as gain in the policy, received from life insurance contract issued by U.S. carrier, resultsin NRA being subject to 30% tax and withholding. • Applies even if policy is issued through foreign branch of U.S. carrier • For non-MEC contracts, withdraw up to basis and then take loans to avoid income taxes • Tax and withholding could possibly be avoided by purchasing an offshore product *The taxation of income may be altered or modified by an applicable income tax treaty.

29. Why Transamerica • All U.S. products are available for foreign national business • Expertise of our Advanced Marketing team • Dedicated International Underwriting Team • Priority handling for all large cases* • Reviewed within 24 hours of receiving the file • Expedited review of traditional new business and trials • Reviewed within 72 hours of receipt • High-tech reinsurance processing • Competitive premiums for most regions of the world • Eligibility based on medical qualifications and country of residence—not capped at Standard • *$1 million face amount or $100,000 premium

30. Tools and Resources Presentation Producer Guides Flyers Consumer Brochure

31. TransACE® is a nonparticipating, flexible-premium universal life insurance policy issued by Transamerica Life Insurance Company, Cedar Rapids, IA 52499. Policy Form #1-12611107 (CVAT), Group Certificate #2-72336107 (CVAT) for certificates issued under a group policy issued to the Rhode Island National Consumer Protection Trust. Policy form and number may vary, and this policy may not be available in all jurisdictions. Transamerica Life Insurance Company (“Transamerica”) and its representatives do not give tax or legal advice. This material is provided for informational purposes only and should not be construed as tax or legal advice. Clients and other interested parties must be urged to consult with and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here. Discussions of the various planning strategies and issues are based on our understanding of the applicable federal laws in effect at the time of publication. However, these laws are subject to interpretation and change, and there is no guarantee that the relevant authorities will accept Transamerica’s interpretations. Additionally, this material does not consider the impact of applicable state laws upon clients and prospects. Although care is taken in preparing this material and presenting it accurately, Transamerica disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it. This information is current as of May 2010. OLA 2026 0510

32. Gift and EstatePlanning forForeign Nationals