If your spouse is not a citizen of the United States, some special rules could affect your estate planning process. In general, you will proceed just as you would if your spouse was a legal citizen.
The following are some estate planning matters all people should address, regardless of their citizen status:
- Making a will or living trust to leave behind assets according to your wishes
- Naming beneficiaries for retirement or life insurance accounts
- Establishing durable power of attorney for finances and healthcare
Noncitizens may inherit property in the same way as citizens, and so you shouldn’t expect to encounter significant problems transferring assets or account benefits to your spouse.
Beyond that, there are several rules noncitizens and their spouses should be aware of when engaged in estate planning. Most are related to taxes.
Rules for noncitizen spouses for federal estate and gift taxes
The clear majority of people will never have to worry about the federal estate tax, as it only affects very wealthy families and individuals. The 2017 exemption limit for the estate tax is $5.49 million for individuals and $10.9 million for couples.
If you are hovering around the exemption limit, having a noncitizen spouse makes you subject to different rules than you would abide by if your spouse were a citizen. Under current estate tax rules, any assets left to a surviving spouse are not subject to the federal tax, regardless of their worth, so long as that spouse is an American citizen.
If that spouse is not a citizen, the estate tax applies as usual. This is because the federal government does not want noncitizens inheriting a significant amount of money or assets, paying no taxes and then returning to their native country with those assets.
Also, if your spouse is a citizen of the United States, any gifts you give to him or her while you are still alive can be distributed without being subject to the federal gift tax. However, if your spouse is a noncitizen, there is a tax-free limit of $149,000 per year (as of 2017).
What options do I have?
If you are concerned about the estate or gift tax because of your spouse’s lack of citizenship, you have two options: have your spouse become a U.S. citizen or use a Qualified Domestic Trust (QDOT).
With a QDOT, you leave property behind to the trust instead of your spouse, who is listed as the beneficiary of the trust. There can be no other trust beneficiaries so long as your spouse lives. He or she receives any income the trust property generates. That income is not subject to the estate tax.
On the other hand, if the trust assets ultimately go to your spouse, the estate tax will apply to that property.
For more information on planning for your estate if you have a noncitizen spouse, speak with a respected attorney at Bartlett & Herrington, P.C.
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