AACI protests ‘major flaw’ in US estate tax

The Association of Americans and Canadians in Israel has appealed to the US Congress to correct a “major flaw” in the estate tax, which it claims unfairly discriminates against many US citizens living abroad.

AACI national president Asa Cohen wrote to House Ways and Means Committee Chairman Dave Camp last week, pointing out that the estate-and gift-tax exclusion for US citizens and green-card holders is capped at $5,000,000, while the exclusion for nonresident aliens is limited to only $60,000. Since 1988, Cohen said, the exclusion for citizens and green-card holders has grown almost eight-fold, but the nonresident exclusion has not changed.

Many of the 180,000 US citizens who reside in Israel are married to nonresident aliens, and many of these couples have bank accounts and investments in the US as joint tenants, Cohen wrote. They often wrongly assume that the exclusion applicable to one spouse’s estate is also applicable to the other spouse’s estate and are “flabbergasted” to discover that the exclusion is only $60,000 and that they are subject to a heavy tax.

“The situation is not only fundamentally unfair, but dangerous,” Cohen wrote. He warned that if nonresidents with bank or brokerage accounts in the US discover the “woefully inadequate exclusion,” there may well be a large number of accounts removed from US banks and brokerage houses and taken abroad. In addition to posing a risk to AACI members, he added, this will also have an obvious impact on the American economy.