Through the many years of attending to applications, we have established good contacts at the IRS allowing us to be up to date with any policy changes and to receive updates on outstanding applications.
When is a “federal transfer certificate” required?
For estates where the deceased was not a US citizen or domiciled in the US, the threshold for US estate tax is $60,000.
Where the value of US situated assets exceed this threshold, the executors or administrators may have a duty to report the assets to the IRS and they may need to obtain a federal transfer certificate to attend to the assets held there.
This is a common requirement where shares in US companies are held in an estate.
How do I obtain a Form 5173 clearance transfer certificate?
If the deceased was not a US citizen and was not resident in the US, the estate will need to complete and file a Form 706-NA. There will also be a significant amount of supporting papers required, by way of evidence of the estate details, as well as correctly requesting the relevant sections of any applicable double taxation treaty to allow the estate to benefit from relief on estate duty.
The form can be located on the IRS website together with the Form 706-NA instructions. It is important to check that you are using the correct revision of the document for the year that the deceased passed away.
How long does it take to obtain a transfer clearance certificate from the IRS?
This is, unfortunately, a long process, usually taking between 6–9 months. Sometimes the timescale can be much longer if the estate is chosen for audit.
It is also something which is not often listed as a requirement by the transfer agent or asset holder when you initially contact them for assistance. When it is mentioned, they may refer to it as a “Form 5173 Transfer Certificate”. Many people find that they are only told about this requirement once they lodge all the completed forms. As it takes such a long time to be arranged, reporting the US assets to the IRS should be attended to as soon as possible.
Can I attend to the administration of the assets while the clearance is awaited?
Unfortunately, you will not be able to complete the administration until the clearance is issued by the IRS, regardless of whether you intend to transfer or sell the shares.
It is important to keep in touch with the transfer agent to notify them that the estate requires clearance and that you are attending to the same, in the hope that this prevents the assets from being marked as inactive and being escheated through the abandoned stock process in the US.
Do I need to obtain clearance or pay tax to attend to Canadian shares?
The process for attending to the administration of Canadian shares is very different from US shares. While there is usually still a requirement for a medallion signature guarantee stamp, there is not the same tax return filing requirement.
How can Lester Aldridge assist with this kind of administration?
With our contacts at the IRS and experience of their procedures, our international estate lawyers would be pleased to assist you in arranging to obtain Federal Tax Clearance.
Our international probate solicitors can offer this as a standalone service, or complete the same as part of attending to the whole process to administer the assets.
Frequently Asked Questions
If the deceased was domiciled in the Republic of Ireland, US estate tax may be payable, as the double taxation agreement between the Republic of Ireland and the US works differently to that with the UK. If the US estate tax is not paid within the IRS time limits, interest and penalties will start to accrue.
If the deceased was domiciled within the UK and not a US citizen, generally, no US estate tax will be payable on the US assets due to the double taxation agreement between the US and the UK.
However, there is still the obligation to apply for the clearance certificate by lodging the US estate tax return (usually form 706-NA and supporting forms and documents). The estate may also only benefit from the provisions of the double taxation agreement if this is correctly applied for.
There are many other countries, as well as the United Kingdom and the Republic of Ireland, who have a double taxation agreement with the US which can mean that no estate duty is payable. Again, it will be necessary to apply for the clearance certificate by filing a completed 706-NA application and to include a request for the relevant provision of any double taxation agreement to be applied to the estate.
For those countries where there is not a double taxation agreement which allows for relief from US taxes, estate duty may be payable. Unified credit may be applicable and it is always a good idea to make sure that you check that you are including a request to benefit from all allowable deductions.
Interest and penalties accrue after the 9 month filing deadline so it is important to not delay on getting the application finalised.