What is the best way to transfer assets upon my death to my non-U.S. citizen spouse?
Today, at least one in five married households in America include one spouse who was born outside of the United States, according to Census Bureau data. For those spouses who are married to a non-U.S. citizen, some special considerations exist when you embark on the estate planning journey. Without proper planning, assets left to your non-citizen spouse could result in heightened taxation. Fortunately, there are ways that citizen spouses can efficiently pass down their assets to their non-U.S. citizen spouse with the help of an estate planning lawyer.
Qualified Domestic Trusts
When a U.S. citizen passes away and leaves his or her assets to a non-U.S. citizen spouse, the estate cannot take the typical marital deduction. The federal estate tax marital deduction allows the value of the assets passed to the surviving spouse to be deducted from the decedent’s estate. Deductions can be made for assets passed to the surviving spouse through either a will or a trust. This valuable deduction can often make the difference between an estate being subjected to the estate tax or escaping it, making the loss of the deduction when there is a non-U.S. citizen spouse unfortunate.
It is still possible for assets passed to a non-U.S. citizen to receive the marital deduction. To do so, the assets must be held in a qualified domestic trust (QDOT). A QDOT is required to have at least one U.S. citizen or domestic corporation as trustee. QDOTs limit the amount of assets that can be held in foreign real estate, and may require a bank or trust company serve as the trustee. The QDOT will allow the deceased U.S. citizen’s estate to defer estate tax on assets passed to the non-U.S. citizen spouse.
Gifting During Your Lifetime
When both spouses are U.S. citizens, the spouses can gift to one another tax free without limit. Where one spouse is a non-U.S. citizen, the unlimited gifting will no longer apply. Rather, the U.S. citizen spouse is permitted to gift up to $152,000 annually tax free to the non-citizen spouse. Spouses can incorporate routine tax free gifting as part of their overall estate plan. Contact an estate planning attorney for more information on how you can provide for your spouse who is not a U.S. citizen during your lifetime and after your death.