How Estate Tax Laws Affect Non-Citizens

I have spoken to several people lately about why an immigration status affects one's estate planning. To me, there are many benefits of being a US citizen, here is just another. Estate tax laws permit spouses to transfer unlimited amounts of property to each other without gift or estate taxes. The “unlimited marital deduction” does not apply, however, to non-citizen spouses. Congress is concerned that a non-citizen spouse might move to another country, thereby avoiding the U.S. gift and estate taxes. Therefore, providing for a non-citizen spouse requires special planning. In short: No estate tax marital deduction is available for transfers at death unless the property is held for the benefit of the non-citizen spouse in a “qualified domestic trust” (QDOT). However, a deceased spouse can leave assets to a surviving non-citizen spouse – estate tax-free – up to the decedent’s estate tax exemption. But assets left to a surviving non-citizen spouse using the decedent’s estate tax exemption will be subject to estate taxes when the non-citizen spouse dies, thereby “wasting” the deceased spouse’s estate tax exemption. An experienced attorney can work with you to create a QDOT that would allow the deceased spouse to defer estate taxes until the surviving non-citizen spouse’s death, while “sheltering” his/her estate tax exemption. During the noncitizen spouse’s lifetime, the trustee of the credit-shelter trust can provide the surviving spouse with income and principal as needed for health, education, maintenance, and support. The surviving spouse is also able to receive income from the QDOT. However, the surviving spouse will incur estate taxes at the tax rate in place at the time of the first spouse’s death upon two taxable events: 1)the trustee distributes principal from the QDOT to the surviving spouse or 2) the surviving spouse dies. Any distributions of principal to the non-citizen spouse are subject to estate taxes, and the trustee must withhold funds equal to the tax. However, exceptions are made in certain circumstances. As always this information is intended for general information purposes only and is not intended to be the rendering of legal advice for specific cases. Because your legal matter is unique, it is recommended that you obtain the advice of an attorney. My office would be pleased to meet with you and assist you with your legal needs