Transfer Certificate Filing Requirements for the Estates of Non-residents Citizens of the U.S.
Transfer Certificate Filing Requirements for the Estates of Non-residents not Citizens of the U.S.
You may be aware that U.S. citizens regardless of their residency must file IRS Form 706 (Estate tax return) if their taxable estate exceeds $11.58K (2020). Likewise, non-residents who are not U.S. citizens must file IRS Form 706-NA (Estate tax return) if the taxable estate is over $60K. The former only takes into account certain U.S. situs assets held by the decedent. The instructions to both 706 & 706NA outline the particulars of gross estate and taxable estate.
Both returns are due 9.5 months after the date of death unless IRS Form 7004 request for a filing extension is received by the IRS by the 9.5 month otherwise filing due date.
The links below imply that whether or not the foregoing estate returns are required to be filed, the executor must apply for a special transfer certificate when the estate is not administered in the United States. Therefore, if the U.S. citizen resides in Canada or a non- U.S. citizen decedent holds U.S. situs property, these transfer certificate filing requirements appear to apply.
The time frame for the IRS to process the information is six to nine months.
It has come to my attention that certain financial institutions are strictly following these rules in that they will not transfer assets to a non- resident beneficiary of a U.S. decedent without this transfer certificate. This was the case where the Canadian beneficiary was set on the investment account as a direct beneficiary to avoid STATE probate. Even though the beneficiary was noted as a beneficiary in the decedent’s Will implying the asset goes through the Canadian estate, this direct beneficiary designation appears to have superseded. It appears that even if there was not a direct beneficiary, the IRS would still follow these procedures.
I some circumstances, the financial institution may transfer the assets to a U.S. account for the Canadian beneficiary, request an ITIN for the beneficiary, but the beneficiary may not access the funds or liquidate until this transfer certificate is received.
If the U.S. investment account is not transferred, it is my understanding that the financial institution will still issue tax information slips under the decedent’s name and not the beneficiary’s name, but will amend and create split slips to correct the situation once the transfer certificate is received.
It should be noted that these procedures could create issues for U.S. decedents or U.S. decedents who are delinquent U.S. taxpayers who wish to apply under the Streamlined Foreign Offshore procedures.