Tax on transfer of shares of EIRL & Estate Planning

Jan 17, 2009
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For estate planning purposes, we were advised that we should sign a transfer of shares (spouse to spouse) which will pre-dated (by a lawyer) in case of death of a spouse. [A bill of sales of shares was not recommended; in fact, we were told that a spouse cannot sell his/her shares to the other. (I see also in Dr. Guzman tax docs, that even if possible, gifts at taxed at 25%).]

We are considering this option because none of our children are Dominican residents and we also have assets in the US that we will go to them in their entirety. Moreover, our tax reporting in the US is based on having an LLC here owned by husband and wife. Bringing the children in will indeed cause a lot of issues with our US taxes, more so than converting the EIRL to a sole proprietorship when of us passes.

So my questions are:

Is a transfer of shares of an EIRL from one spouse to the other subject to a transfer tax? If it is, how much is this tax?

Has anyone done or considered doing this for estate planning?

Thanks
 

Randall Bell

New member
Feb 17, 2012
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For estate planning purposes, we were advised that we should sign a transfer of shares (spouse to spouse) which will pre-dated (by a lawyer) in case of death of a spouse. [A bill of sales of shares was not recommended; in fact, we were told that a spouse cannot sell his/her shares to the other. (I see also in Dr. Guzman tax docs, that even if possible, gifts at taxed at 25%).]

We are considering this option because none of our children are Dominican residents and we also have assets in the US that we will go to them in their entirety. Moreover, our tax reporting in the US is based on having an LLC here owned by husband and wife. Bringing the children in will indeed cause a lot of issues with our US taxes, more so than converting the EIRL to a sole proprietorship when of us passes.

So my questions are:

Is a transfer of shares of an EIRL from one spouse to the other subject to a transfer tax? If it is, how much is this tax?

Has anyone done or considered doing this for estate planning?

Thanks

Not specific do DR, but if you had a structure where there was a trust that owned the company, and both the trust and the company where in low/no tax jurisdictions, you could 'take care' of your son through disbursements from the structure that would be taxed subject to his future domicile/residence/citizenship situation.

This structure would only make sense if either a) the tax to be saved is material and more than the 1-2% a year that you'd lose to professional trust fees; or b) you have someone that you genuinely 'trust' to be the trustee of the structure (and you don't have to pay a professional trustee).

For example, if your son lived in DR and was not a US citizen, from what I understand of reading the Guzman docs, he would only be taxed on locally sourced income (please correct me if I'm wrong!) So if your son generates income from a non domiciled company and is paid outside the country, even though he's here, there would be no tax payable on the offshore income.

Is that correct?

Sort of like some of us have income streams in America, and we don't pay tax on them here in DR...

Or for example let's say your son is a US citizen, but domiciled here. He would still have to report his world-wide income to the IRS, but tax only accrues above and beyond a certain bracket (was it $92K?). So for example the trust could disburse money to your son in those years where his salary was below 92K, to bring him up to the tax free bracket. etc.
 
Jan 17, 2009
1,622
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Thanks. It sounds complicated. We don't really want to set up a trust for the kids, but to make sure that if one of us dies first, the other spouse won't have to deal with inheritance laws and can put the business for sale immediately without having to have the kids involved at all.
 

Fabio J. Guzman

DR1 Expert
Jan 1, 2002
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www.drlawyer.com
Please ask your attorney what he or she means by "transfer of shares". Such a transfer will involve some kind of transaction: a sale or a donation, for example, both of which are problematic between husband and wife under Dominican law. A transfer pure and simple, with no consideration, would be null and void.

There are other ways to set this up.