Federal Transfer Certificate
Obtaining a Federal Transfer Certificate for a U.S. Account Held by a Non-U.S. Citizen
If a loved one outside the U.S. has passed away owning a U.S. bank or brokerage account, the US financial institution may tell you that you need to obtain a Federal Transfer Certificate in order to access the funds.
What is a Federal Transfer Certificate?
A Federal Transfer Certificate is a document issued by the Internal Revenue Service (IRS) that authorizes the transfer of U.S.-based assets owned by a non-U.S. citizen or non-U.S. resident who has passed away. Essentially, this certificate confirms that the IRS has reviewed the deceased person’s estate and that any applicable U.S. estate taxes have been paid or that the estate is not subject to these taxes. Without this certificate, U.S. financial institutions, like the bank holding your father’s brokerage account, are legally required to withhold the release of the funds.
Why Do I Need a Federal Transfer Certificate?
The IRS may hold financial institutions liable for unpaid estate taxes on assets held for a non-US resident unless the institution has received a Federal Transfer Certificate proving that no estate taxes are owed on the decedent’s estate. This is a protective measure for the U.S. government to ensure compliance with tax laws.
To ensure that it won’t be liable for unpaid estate taxes, an institution will generally require the person seeking access to the account to provide the institution with a Federal Transfer Certificate
How to Obtain a Federal Transfer Certificate
The process of obtaining a Federal Transfer Certificate depends on whether the account holder was a U.S. citizen and the value of the U.S. assets held by the individual.
Obtaining a Federal Transfer Certificate for Decedents Who Were Neither U.S. Citizens Nor U.S. Residents
If the account holder was neither a U.S. citizen nor a US resident and the total value of the U.S. assets owned by them exceeds $60,000, a Form 706-NA (a U.S. estate tax return for non-citizen nonresidents) will need to be filed with the I.R.S. After Form 706-NA has been filed, a separate request must be made for the Federal Transfer Certificate.
Filing US Estate Tax Return & Payment of Estate Tax
Where the value of a decedent’s US assets exceeds $60,000, IRS Form 706-NA must be filled out to determine whether and how much U.S. estate tax must be paid to the IRS. This Form must be filed with the IRS within nine months of the decedent’s death. Extensions of up to 12 additional months may be requested.
Unless the decedent resided in one of the sixteen countries with which the U.S. has an estate tax treaty, U.S. estate tax will likely be imposed on an amount equal to the value of the U.S. assets over $60,000. The estate tax rate ranges from 26% to 40%, depending on the size of the estate.
Any amounts left to a spouse who is a US citizen are exempt from estate tax; the payment of estate tax on amounts left to a spouse who is not a US citizen can be deferred through a structure called a Qualified Domestic Trust (QDOT). Otherwise, with the exception of very limited circumstances, the estate tax must be paid within nine months of the decedent’s death.
If a valid Will exists, the individual named as the executor in the Will is tasked with filing the Will with the Surrogate’s Court (the court that handles estate matters in the State of New York) to initiate a process called probate. The probate process has specific rules and requirements for ensuring that the deceased’s debts are paid and the remaining assets are distributed in accordance with the terms of the Will.
If the deceased died without a Will, then an Administrator is appointed to manage the estate and distribute the assets in accordance with the default state inheritance laws. New York law authorizes next of kin, in order of priority, can serve as the Administrator.
Requirements Where US Estate Tax Return is Not Filed
If the value of the U.S. assets held by the decedent was less than $60,000, an estate tax return need not be filed. Rather, a request for a Federal Transfer Certificate must be submitted to the IRS accompanied by certain documents, including:
- Copies of the decedent’s last will and testament.
- Copies of death tax returns required to be filed in any country outside the U.S.
- A copy of the decedent’s death certificate.
- An affidavit, signed by the executor or administrator of the estate attesting to information about the decedent’s country of birth and their country of residence and citizenship at the date of death and the United States assets in which the decedent had any interest at the date of death.
We never take for granted the trust that is placed in us when we represent an individual who must navigate the estate administration process following the death of a loved one. If you’d like to learn more about how we can help you, contact us to schedule a consultation.
Obtaining a Federal Transfer Certificate for Decedents Who Were U.S. Citizens
If the account holder was a U.S. citizen but not a US resident, an estate tax return need not be filed to obtain a Federal Transfer Certificate unless (1) the decedent’s worldwide assets exceeded the U.S. estate tax exemption or (2) estate tax spousal portability is elected by the decedent’s spouse.
Obtaining a Federal Transfer Certificate If an Estate Tax Return Is Not Required
If an estate tax return is not required to be filed, a request for the Federal Transfer Certificate must be filed with the IRS with several accompanying documents, including
- A copy of the decedent’s last will and testament
- State Department Form DS-2060, Report of the Death of an American Citizen (obtainable from the U.S. embassy or consulate nearest the place of death), or a death certificate and proof of U.S. citizenship.
- An affidavit signed by the executor or administrator of the estate attesting to the decedent’s worldwide assets and any taxable gifts made by the decedent.
- A copy of any inventory of assets filed with domestic or foreign probate authorities.
- A copy of each death tax or inheritance tax return filed with taxing authorities outside the US.
How Long Does It Take to Receive a Federal Transfer Certificate?
After the request for the Federal Transfer Certificate is filed with the IRS, it can take anywhere from six months to several years to receive the Federal Transfer Certificate, depending on processing times and other factors. While the IRS website states that the time frame for issuance of a Federal Transfer Certificate is six to nine months from the date of filing, in practice, it tends to take much longer. To make matters worse, it is nearly impossible to get any updates on the status of the request. This can be frustrating – and financially stressful – for someone waiting to access the funds, as well as the lawyer or accountant who has assisted them. Be prepared to have patience with the process.
Is a Probate Proceeding Needed to Obtain a Federal Transfer Certificate?
While a US probate proceeding is not necessarily needed to request a Federal Transfer Certificate, it may be necessary in certain situations. An estate planning attorney can determine whether a probate proceeding is necessary and guide you through the process.
Do I Need a Lawyer for a Federal Transfer Certificate?
While you are not required to hire a lawyer to request a Federal Transfer Certificate, it can be challenging to understand the requirements and prepare the documentation on your own. For this reason, most people needing a Federal Transfer Certificate can benefit from a lawyer’s assistance.
Can I Use the Funds in the Account to Pay the Estate Tax?
If the funds in the frozen account are needed to pay the estate tax, the financial institution may agree to allow a check to the IRS to be written against the account. In order for this to happen, the estate tax return will need to be submitted and reviewed by the financial institution.
What Do I Do with the Federal Transfer Certificate When You Receive It?
After receiving the Federal Transfer Certificate, present it to the bank or brokerage firm holding your father’s account. This document will authorize them to release the funds to you or the estate.
Can the Federal Transfer Certificate Requirement Be Avoided?
If someone has already passed away, it is too late to avoid having to secure a Federal Transfer Certificate. If you’re not in that unfortunate situation, you may want plan in advance so that your loved ones won’t be held hostage by the IRS after your passing.
The easiest way to avoid the requirement of a Federal Transfer Certificate is to not hold assets in a US brokerage account. If you want to keep assets in a US brokerage account, check with your financial institution to see if a Federal Transfer Certificate will be required if your holdings are limited to assets that are not subject to US estate tax, such as US treasury bonds, bonds in US corporations, or stock in non-US companies. You can also avoid a Federal Transfer Certificate requirement and US estate taxes by holding the account through certain structures, such as US trusts or foreign corporations.
Final Thoughts
The process of obtaining a Federal Transfer Certificate can be complex and time-consuming, even if you’re familiar with U.S. tax laws. At The Village Law Firm, we guide you through the process and ensure that your submission to the IRS is done properly.
If you need an attorney to help secure a Federal Transfer Certificate, contact us to see how we can help.