US Citizenship Renunciation Could Mean A Steep Inheritance Tax

Renouncing US citizenship or giving up one's long-held green card does not necessarily mean forever severing all ties with the US. Many former Americans, especially those in neighbouring Canada and Mexico, also have family and friends who are still US residents or US citizens, and to whom they want to eventually gift or bequeath assets. Under section 2801 of the Internal Revenue Code, US citizens or US residents who received gift or inheritance from "covered expatriates" (as defined in 877) are subject to an inheritance tax imposed at 40% of the value of the gift or inheritance. Regulations recently proposed by the US Treasury have clarified how and when this tax will be imposed. The new proposed regulations underscore the importance of carefully planning renunciations, gifts, and bequests.