How to Plan Effectively For Non-Citizen Spouses

Spouses can transfer as much property as they would like to each other free of gift or estate tax. Non-citizen spouses are not able to take advantage of this deduction. Because the current $5 million estate and gift tax exemption will be reduced to $1 million on January 1, 2013, non-citizen spouses should plan strategically.

Non-citizen spouses can receive gifts up to the annual exclusion amount from their spouse without a gift tax. A qualified domestic trust (QDOT) may be the best option to minimize estate taxes. These are living trusts that protect the decedent’s estate tax exemption in a credit-shelter trust and then the balance of the estate is allocated to a QDOT. “A deceased spouse can defer estate taxes until the surviving non-citizen’s spouse’s death, while sheltering his/her estate tax exemption.” One of the main requirements of a QDOT is that the non-citizen spouse cannot be the only trustee. There must also be a U.S. citizen to be the co-trustee or the sole trustee. Other requirements vary depending on how much the assets in the QDOT are worth.

If the deceased spouse transfers property to a surviving non-citizen spouse outside of a QDOT, the asset can still be transferred to the QDOT not subject to estate tax as long as it is transferred before the estate tax return due date.

Julius Giarmarco, Estate Planning For Non-Citizen Spouses, Producersweb.com, Dec. 12, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.