C3 Financial Partners

Global Citizens Planning



Global citizens doing business in the United States are a growing clientele in the financial services industry.  As the global economy continues to grow, and as wealth holders in foreign countries continue to find promising opportunities in the U.S., global citizens will require more knowledgeable advice on how to navigate the unique and sometimes complicated rules that govern their assets.

Most global citizens, however, are unaware of the tax liabilities that they are exposed to on account of their residency status in the U.S.  As such, it is crucial that global citizens and their advisors carefully review their estates in order to uncover potential tax issues.  More importantly, advisors should look early on for solutions to these issues in order to protect their clients’ assets.

In this article, we will discuss the intricate estate tax liabilities that global citizens are subject to, as well as strategies for managing them.  Specifically, we will talk about how life insurance can be a valuable tool for maintaining liquidity while meeting U.S. tax requirements.

Residents vs. True Global Citizens

United States tax code makes two important distinctions when it comes to global citizens: Resident Aliens and Non-Resident Aliens (also referred to as True Global Citizens, or TGCs).  The difference primarily comes down to how much time an individual spends in the country, though TGCs will typically also have fewer assets in the U.S. It’s an important distinction, however, because the two groups are subject to dramatically different tax liabilities (which we’ll discuss later in detail).  Moreover, the Internal Revenue Service has its own set of requirements for residency apart from other legal requirements.  In many cases, an individual might not even be aware that they are considered a resident for tax purposes, because for other legal matters they are not.

The IRS has two tests for whether an individual meets residency status for tax purposes.  Those requirements are as follows:

The Green Card Test

If an individual has applied for and been granted an Alien Registration Card, known familiarly as a “green card,” they will be considered a resident.  This requirement seems pretty straightforward, but it can offer surprises.  For example, an individual might decide that they no longer want U.S. residency and choose to surrender their green card, thereby relinquishing American residency.  There are multiple bureaus, however, that have to process this action; and if it’s improperly submitted, an individual might still be subject to resident requirements, even if they believe they have given up residency.

The Substantial Presence Test

Even if a global citizen does not hold a green card, they may still be subject to resident liability if they meet what the IRS calls the “substantial presence test.”  The details of this test can become rather complicated, but essentially it states that if a global citizen spends a certain amount of days in the U.S. during a given period of time, they will automatically be considered a resident for tax purposes.

Because of the complicated nature of the substantial presence test—and because it goes into effect automatically, regardless of whether an individual meets other legal requirements for residency—many wealth holders might not even be aware that they’re subject to resident tax status.  It’s important, then, to be clear on an individual’s residency status with the IRS and to plan accordingly.

Tax Liabilities of Residents and TGCs

Why are these IRS distinctions so critical? Because, as we mentioned, residents and TGCs are subject to substantially different tax policies, which require different planning strategies.  These policies most crucially apply to estate taxes, which assess such assets as real estate, valuables (such as jewelry, antiques, or artwork), stock shares, and certain bank deposits, among other things.

  • True Global Citizens, or Non-Resident Aliens, receive a $60,000 exemption to taxes on their estate, and are taxed at 40% on their U.S. assets only, without benefits or deductions.
  • Resident Aliens receive a much larger exemption—about $11.2 million—but they are taxed at 40% on their worldwide assets.  This exemption is a provision of the 2018 tax reform bill, and will likely return to its previous amount of $6 million when that bill expires in 2026.

To put that in context, a TGC with $1 million in U.S. assets will pay about $376,000 in estate taxes ($1,000,000 – $60,000 = $940,000 x 40%).  A Resident Alien with $15 million in assets held anywhere in the world will pay upwards of $1.5 million ($15,000,000 – $11,180,00 = $3,820,000 x 40%).

For a family that is unaware of their U.S. tax exposure, these figures can come as a huge surprise.  If unprepared, they may be forced to sell off valuable assets in order to meet their tax obligations.  This is why it is crucial for global citizens to seek knowledgeable advice about their tax status in the U.S. and how to plan for it.  It’s also why advisors should consider life insurance as a solid option for managing estate tax liabilities.

How Life Insurance Can Help Global Citizens Plan for Estate Taxes

Once a global citizen’s long-term tax status has been determined, advisors can begin to plan for how to manage the transfer of their estate to the next generation, including how to cover estate taxes.  For a number of reasons, life insurance can be an extremely useful tool in this process.  Here’s why:

  • Liquidity Means Choice

The most important benefit of having a life insurance policy is that it will immediately provide a source of cash to manage expenses once a wealth holder has passed away.  Life insurance, naturally, has always been a valuable tool for covering various costs relating to estate management—the estate tax is perhaps the most considerable of those costs.  With this cash on hand, heirs can comfortably meet their tax obligation without having to liquidate valuable assets, which gives them more choices for how to manage the estate.


  • Dollar-Denominated Contracts

Because a U.S. life insurance policy dictates a particular U.S. dollar amount to be paid upon the policy holder’s death, it is safe from the vagaries of exchange-rate fluctuation to which overseas holdings and policies are subject.  Beneficiaries know well ahead of time what they will receive.

  • It Is Often Easier than Negotiating a Will

Having a simple cash payout upon an estate-holder’s death gets rid of the need to designate which assets will be meted out to which heirs, and how much of them will need to be designated to estate settlement costs, including taxes.  Simplifying estate settlement in this way can head off family conflicts and preserve assets for the next generation.

Having a U.S. life insurance policy can be especially helpful for wealth holders with heirs living in the U.S., since the insurance payout is not subject to foreign estate laws, such as forced-heir policies.

  • U.S. Life Insurance Policies Are Secure and Confidential

Many global citizens may be reluctant to purchase life insurance policies in their country of citizenship, because corruption and lax regulation can subject their private information—including details of their assets and net worth—to exposure and exploitation.  Life insurance in the U.S. is secure, confidential, and tightly regulated, and wealth holders can rest assured that their private information is protected.

  • Customized Solutions Can Meet the Needs of Any Estate

There is no one-size-fits-all solution to estate management.  Each wealth holder faces different obstacles and has unique needs.  Fortunately, there is a multitude of products and services in U.S. life insurance that can provide a customized solution to the demands of any estate.


Resident and Non-Resident Aliens in the U.S. are subject to a complicated system of tax rules that can make settling their estates difficult if they’re not adequately prepared.  Many global citizen wealth holders are not aware of their tax exposure.  For this reason, it is crucial for their advisors to examine their estate closely and carefully plan for its eventual transfer.  Life insurance can play an important and beneficial role in this planning, and allow for the smooth and efficient transfer of an estate from one generation to the next.

FINRA Broker Check