Marriage brings many joys and shared dreams, but it also introduces complex legal considerations, especially regarding inheritance and taxes. If your spouse is not a citizen of the United States, the standard rules of inheritance tax do not apply in the same favorable way they do for citizen spouses.
Failing to account for these differences can result in a significant, unexpected tax burden that diminishes the wealth you intended to leave behind. Navigating estate planning when you are married to a non-U.S. citizen requires strategic foresight to ensure your partner is protected from aggressive tax codes.
Under standard U.S. tax law, married couples benefit from what is known as the unlimited marital deduction. This provision allows one spouse to transfer an unlimited amount of assets to the other, either during their lifetime or at death, without incurring any federal estate tax. This assumes that the surviving spouse is a U.S. citizen who will eventually pay taxes on the remaining assets upon their own death.
However, the IRS treats these transfers differently when the receiving spouse is not a U.S. citizen. The government is concerned that a non-citizen spouse might take the inheritance and leave the country, effectively removing those assets from the U.S. tax system forever.
Consequently, the unlimited marital deduction is generally not available for property passing to a non-citizen spouse. Without this deduction, any assets you leave to your spouse that exceed your individual federal estate tax exemption could be taxed heavily—up to 40% in some cases. This reality makes estate planning for a non-citizen spouse a critical priority for preserving family wealth. You need specific legal vehicles to mimic the benefits of the marital deduction, ensuring that your surviving partner isn’t forced to liquidate assets just to pay a tax bill. We can help you assess your current asset levels to determine if you are at risk of exceeding exemption thresholds.
One of the most effective tools for mitigating this specific tax burden is the Qualified Domestic Trust, or QDOT. This legal structure allows you to defer estate taxes on assets left to a non-citizen spouse until the principal is distributed or the surviving spouse passes away. Essentially, it allows you to qualify for the marital deduction that is otherwise denied to non-citizens. For the trust to be valid, strictly defined requirements must be met, including the mandate that at least one trustee must be a U.S. citizen or a U.S. corporation. This ensures the IRS retains a mechanism to collect taxes eventually, which grants you the deferral privilege now.
Establishing a QDOT is a complex process that must be executed precisely to meet IRS standards. If the trust drafting is flawed, the IRS may reject the QDOT status, triggering immediate tax liabilities. When you utilize this strategy for planning your estate with a non-U.S. citizen spouse, the assets flow into the trust rather than directly to your spouse. Your spouse can receive income from the trust without triggering estate tax, but distributions of the principal may be subject to tax.
This arrangement ensures your spouse is provided for while keeping the estate tax deferral intact, effectively bridging the gap created by their citizenship status.
Beyond inheritance, you must also be aware of strict rules regarding lifetime gifts and property ownership. While you can give unlimited amounts to a citizen spouse tax-free, gifts to a non-citizen spouse are subject to an annual limit, often referred to as the “super annual exclusion.” If you exceed this amount in a single year, you must file a gift tax return, and the excess amount eats into your lifetime estate tax exemption. Furthermore, the rules for jointly owned property are much stricter. The IRS generally presumes that the first spouse to die owned 100% of the jointly held property unless the surviving non-citizen spouse can prove they contributed their own funds to the purchase.
This “consideration rule” can lead to double taxation or artificially inflated estate values if you are not careful with your record-keeping. For example, if you add a non-citizen spouse to a deed, you may be triggering gift taxes immediately or complicating the estate tax later. Proper estate planning involving a non-citizen spouse involves meticulous documentation of who paid for what during the marriage to prove contribution.
We help couples structure their ownership and gifting strategies to maximize the annual exclusion and avoid accidental tax liabilities on jointly held real estate or investment accounts.
Protecting your legacy requires more than just a simple Will when international citizenship is a factor. The default laws are not designed in your favor, and without intervention, your spouse could face immediate and severe tax consequences upon your passing. By implementing tools like QDOTs and managing lifetime gifting carefully, you can secure your family’s wealth against unnecessary depletion. We are dedicated to ensuring your non-citizen spouse is treated fairly when it comes time to implement an estate plan.
If you are concerned about how your spouse’s citizenship status affects your inheritance plan, do not wait until it is too late to make changes. Contact Veliz & Associates today to schedule a consultation.
We evaluate your case and determine how we might be able to help.
We will meet with you to discuss your next options and lay out a plan.
Our team guides you throughout the process so you feel confident about your choices.
(305) 250-9917