A reader asked if I would write about cross-border estate taxation issues as they relate to Bermuda and the US, and the transfer of property in Bermuda.

I have done so by giving an opinion on the following questions.

Please note, these answers are general in nature for informational purposes only. See my disclosure at the end of the article.

Reader Questions:

1. Assume a Bermuda property owner has Bermuda status and the beneficiaries are the owner’s children, will that property pass to them tax free?

Yes, under Bermuda law, if the owner (an individual) has applied and designated a Bermuda property as a primary homestead with the Primary Family Homestead Certificate.

This law exempts the property from Bermuda stamp duty tax that would otherwise be due upon death of the owner. Any property owner can designate a property for this exemption and if the owner (during his/her lifetime) owns more than one property, he/she can choose one property to receive the exemption. A property not exempt at the owner’s demise can be so designated by the estate representative for a certain time period after death. (See Bermuda Tax Commissioner, at 1*A)

You can only designate residential properties as a primary family homestead, such as a house, condominium, or another unit used wholly or mainly as a private dwelling. The dollar value of the exemption is granted based on the affidavit of value provided by the Supreme Court. (See the Stamp Duties Act 47A and 47B, at 1*B)

The children would need to be designated as beneficiaries. This conveyance of property can also happen if one or more children are joint tenants with the owner, the stamp duty having been paid when the joint ownership was implemented, a category discussion for a later time.

No, if the property is not eligible for PFHC-designation.

Trust or corporate ownership needs its own discussion.

2. If the owner is Bermudian and the beneficiaries are dual citizens (US and Bermuda), what issues, if any, must be considered?

There are a number of factors to consider — very much focused on the US tax income / estate issues and the tax reporting and filing compliance side of this equation. These are a few of them:

• Are the beneficiaries resident in Bermuda, or elsewhere?

• Are the beneficiaries compliant with US tax and reporting obligations? Receipt of assets from a foreign estate above certain dollar thresholds, along with any bank accounts, financial interests, etc, must be reported to US Internal Revenue Service along with their same year income tax return.

• Are the beneficiaries planning to sell the estate property? The dual-citizens with the United States may have capital gains that will need to be recognised if the property realises a profit above the valuation at date of death of the owner.

• Are the beneficiaries inheriting rental property, keeping in mind that the Bermudian owner, who may have owned more than one property while still alive, can designate the property with the highest value for the PFHC status. That property may be income-producing real estate. Receipt of such property will bring additional income tax filing and reporting issues for the beneficiary dual citizens.

• Bermudian dual-citizens with the US will then need to review their own financial planning to consider the PFHC application for the inherited Bermuda property, and the US estate tax ramifications for their own family estate planning.

3. Will the cost basis of the property for the beneficiary, for US tax purposes, be set based on the market value at time of death of the owner?

Generally, yes, see question four.

4. If the owner, now deceased, had dual citizenship (US and Bermuda), would the United States include the full value in the decedent’s estate?

Generally, yes, the same answer as above — the value at date of death (or possibly an alternate date) that is independently derived by a verifiable entity, eg the Supreme Court, or a qualified real estate appraiser, for instance. Since we have no further information on the owner, this answer cannot be fully qualified without reviewing the owner’s entire financial profile.

Well, all the questions above appear to have relatively quick answers. But there is a caveat to follow.

Know that taxation issues, particularly when more than one country along with various individuals with multiple jurisdictions and family connections are involved, are almost never confined to one easy solution.

In today’s world of Fatca, country intergovernmental agreements, tax treaties, and OECD common reporting standards, residency, nationalities, citizenships, etc., when interposed with taxes, reporting, filing can be incredibly complicated.

Further, due to these increased tax reporting and compliance issues, legislated by countries and global reporting structures, and imposed on all types of financial institutions, trusts, foreign companies, partnerships and the like, anyone who ignores these issues will inevitably face significant financial hurdles.

Beneficiaries/owners who opt to consult with advisers, such as an investment managers, attorneys, accountants, trust officers, financial planners, or other persons in advisory businesses, are placing their reliance and trust in these individuals to ascertain the ramifications of tax and financial planning that will impact them and their families.

Be sure that you understand your issues and that your adviser is internationally professionally qualified (or consults with those who are) to help you manage your affairs in this complex financial era.

Space constraints do not allow further discussion, but here are other questions for another time.

What happens if the US person is not US tax-compliant?

What if the US person has another citizenship, UK, US?

What if the beneficiary of the estate is a trust with multiple trust beneficiaries?

What if the Bermudian inherits US or UK property?

What if the beneficiary is not a Bermudian?

Detailed full answers are not provided here, particularly with reference to US tax reporting and filing, because tax laws are subject to change without notice; the facts on these questions are basic and do not address the complete personal financial profile of each type of individual mentioned.

I am not your tax adviser, financial planner, investment representative, US CPA, attorney or provide any other advisory services, nor should this article be construed as personal financial planning advice.

References:

1*A. Office of Tax Commissioner: https://tinyurl.com/y8waatoe

PFHC application: https://tinyurl.com/y9pk595m

1*B. Bermuda Stamp Duties Act 47A and 47B: https://tinyurl.com/y7u3vc84

Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Pondstraddler Life, financial perspectives for Bermuda islanders with multinational families and international connections on the Great Atlantic Pond. Contact: martha@pondstraddler.com