Gift Rules

Certain foreign trusts reported about $2.9 billion in distributions to U.S. persons in 2006, the most recent year for which data is available, compared with $311 million in 2002, according to the IRS.

A related issue is gift taxes. Foreigners generally may give unlimited sums to U.S. taxpayers without triggering U.S. gift taxes as long as they don't give physical property that's in the U.S., such as real estate or art, yet such gifts may ultimately trigger estate-tax levies for the recipients. U.S. taxpayers declared about $2.9 billion in gifts from foreigners and foreign corporations in 2006, compared with about $2.3 billion in 2002, according to the IRS.

It's unclear whether the IRS considers cash in U.S. bank accounts to be U.S. property, so when giving cash to U.S. children foreign parents may want to make transfers from their non-U.S. bank account to the child's non-U.S. bank account, said Leigh-Alexandra Basha, partner with Holland & Knight LLP in Tysons Corner, Virginia.

Whether the IRS would consider transfers of cash to be a gift for tax purposes would depend on the facts of a particular instance, said Sara Eguren, an IRS spokeswoman.

A common pitfall occurs when parents make expensive gifts to U.S. children when they come to visit, said Ed Mooney, wealth strategist for New York-based Bank of New York Mellon Corp.

"They go into Tiffany's or Cartier and surprise their child with a gift that's of significant value," Mooney said.

There's no lifetime gift-tax exclusion for foreigners making gifts of U.S.-based property, which means those giving property may owe taxes on amounts greater than $13,000, at a rate of as much as 35 percent. The lifetime gift-tax exclusion for U.S. citizens is currently about $5 million per individual through 2012.

One strategy for minimizing taxes on gifts of real estate may be to place the property into an offshore company, with family members owning the interests in the offshore company, Marion said. Gifted interest in the company from parents to children may be considered an intangible and so generally isn't considered taxable, he said.

Foreign Corporations