U.S. inheritance tax & intergenerational transfer

[brink]

This is a question more for the U.S. laws. Suppose that Mr. A is a senior U.S. citizen, California resident. He has equity of over a million in his home and wants to give it to his heirs. Can he

1. sell the California house (paying whatever capital gains tax applies)

2. go to Mexico

3. become a legal resident there with an FM3 visa

4. put his million dollars into Mexican financial institutions and/or investments

5. transfer the wealth to his heirs (who are also legal residents of Mexico) either before or after his death, and get around U.S. I.R.S. restrictions on gift and inheritance?

[Quién Soy Yo?]

I'm not an attorney, but I think the answer to all of your questions is "Yes."

But, your friend is better off consulting with a qualified trust and estate attorney rather than having you ask novices here.

;-)

[joaquin]

I think that this is called "money laundering." The last time I checked, it was unlawful.

[Quién Soy Yo?]

How is this money laundering? Or, unlawful?

The sale of the house is reportable for income purposes and the OP indicates capital gains taxes will be paid, if appropriate. Withdrawing funds of that size from a U.S. bank requires special reporting to the U.S. Department of the Treasury. So the government is aware of not only the deposit of the home sale proceeds into the bank account, but the withdrawal/transfer to Mexico. Mexico requires that banks report this size deposit, and unless the person in the OP's hypothetical story is a drug lord, he'll/she'll have to complete the reports with their Mexican bank.

If the owner of the assest dies in Mexico the issue then becomes whether or not the USA or Mexico can claim some sort of estate/inheritance tax. That's where the advise of an experienced trust and estate attorney becomes important. The attorney should be consulted before any of this is done to make certain it meets the letter of the law in both countries.

Maybe the person will be a citizen of the USA and the estate subject to some law in the USA. Maybe the person will be a Mexican citizen or resident of Mexico and therefore immune from enforcement of a particular USA law, if one does apply. Lots of "What if's" here.

Maybe the person seeks to avoid inheritance/estate laws in the USA, and if there's a way to do that . . . there's nothing wrong with doing so if the law, or a loophole in the law, permits that.

I think it's a very long stretch to toss out the word "money Laundering."

[joaquin]

Originally Posted by brink

5. transfer the wealth to his heirs (who are also legal residents of Mexico) either before or after his death, and get around U.S. I.R.S. restrictions on gift and inheritance?

This is the item that might suggest an unlawful transfer of money. My reading of this says that his heirs are not Mexican citizens, but probably US citizens. What was more obvious was his statement on "...get around...restrictions...." I did not try to read more into it than was written. If there is a "loophole", so be it. Use it.