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Estate planning when your spouse isn’t a U.S. citizen

On Behalf of | Dec 19, 2021 | Estate Planning |

If you’re one of the many people living in the Northern Virginia area whose spouse is not (or at least not yet) a U.S. citizen, you may wonder if their immigration status affects your estate planning. Specifically, does it affect their right to an inheritance? 

The good news is that not being a U.S. citizen doesn’t disqualify a person from inheriting assets. However, there are tax issues you’ll need to consider.

Typically, surviving spouses don’t have to pay estate taxes on their inheritance. They receive what’s called a “marital deduction” of 100% of any amount up to the maximum allowed ($11.7 million in 2021). However, that marital deduction doesn’t extend to non-citizen spouses.

How a QDOT works

That’s where a qualified domestic trust (QDOT) can help. By placing funds for your spouse in a QDOT, your spouse can receive the marital deduction and not have to pay estate taxes. It’s important to understand, however, that when your spouse passes away, any assets left in the trust will be subject to estate taxes when they’re passed on to the beneficiaries.

A trustee for the QDOT needs to be a U.S. citizen. If you have more than one trustee, at least one of them must be a citizen. You can also choose a U.S.-based corporation to be the trustee as long as they have legal authorization to retain estate taxes.

Gifting assets while you’re alive is another choice

Another way to help ensure that your spouse has plenty of assets should you predecease them is to give them assets while you’re still alive. It’s important to understand the annual and lifetime limits on these gifts so that you don’t unnecessarily create a tax burden. 

Even if your spouse is in the process of becoming a U.S. citizen, don’t assume that they will have that citizenship when you die (or before the taxes on your estate are due). Estate planning is in part about being ready for the unexpected. You’ll want to ensure that they get the assets you intend for them regardless of their citizenship status. You can always make changes to your estate plan later. With experienced legal guidance, you can determine what’s best for your family and be prepared – regardless of what the future brings.