If you have a spouse who is not a U.S. citizen, there are some important considerations that you must make when planning for your marital estate. While many aspects of estate planning are the same no matter the legal status of your spouse, a few special exceptions apply.
The simple answer is yes. A noncitizen, or even a nonresident, can still inherit from a spouse. Noncitizen spouses are allowed to own land, can be beneficiaries on retirement accounts, and can be the beneficiaries of trusts created especially for them. None of these inheritance structures are changed by the status of the spouse. What is affected by the status of a spouse are:
Normally under United States laws, transfers of assets to a surviving spouse upon the death of the other spouse are not subject to federal estate tax limits. This means that an unlimited amount of assets may transfer from one spouse to another without the threat of a tax being imposed.
For noncitizens, this special protection for spouses does not apply. Transfers to a noncitizen spouse upon death are treated like transfers to any other third party. If the amount of the estate being transferred is more than 5.49 million dollars (for 2017), then the estate tax will apply and the noncitizen spouse’s new assets will be taxed.
According to the government, the reason behind this is simple. The government is concerned that if the noncitizen receives a large amount of assets after the death of the citizen spouse, the noncitizen may take those assets and move them abroad rather than keeping them in the United States.
To avoid the estate tax, some family members will gift assets to other family members throughout their lifetime, slowly drawing down the value of the estate. If two U.S. citizens are married to each other, they can make gifts to each other over the course of lifetime without any threat of a gift tax being applied. Again, for noncitizens and nonresidents, it’s a different story.
Non-citizens can receive only $149,000 a year in tax-free gifts (for 2017). Beyond that amount, the gifts will be taxed.
If you have a large estate and are concerned about your ability to receive assets without taxation because you are a non-citizen, there are special trusts that may be available to allow noncitizens to avoid taxation, including qualified domestic trusts (“QDOT”). The QDOT mechanism can allow spouses to ensure the avoidance of estate taxes at the first spouse’s death, giving the surviving spouse time to obtain citizenship during their lifetime. Of course, obtaining U.S. citizenship may itself have taxable consequences, as the U.S. taxes its citizens/permanent residents on worldwide income. To learn more about qualified domestic trusts or to discuss the tax consequences of your citizenship/residency, you should talk with an experienced trusts and estates professional.
If you have a large estate that you would like to ensure that your noncitizen spouse can receive without penalty, the estate planning attorneys at Romano & Sumner, LLC, can assist you developing a strategic estate plan to protect your spouse’s interests. For more information, contact us online or at 281-242-0995.
Romano & Sumner, PLLC