Proper Estate Planning for the Non-U.S. Spouse

Traditional estate planning is a necessity for all couples in the event of a tragedy. No matter your age, a married couple should consult with an estate planning professional to prepare legal documentation should the need arise.

For most couples, the assets of the deceased spouse generally pass to the surviving spouse estate tax free. For non-citizen spouses, however, different planning is required for estate tax purposes.

Shared assets

A majority of married American couples share their assets. From checking and savings accounts, to automobiles, to properties, to mortgages and other financial obligations, these assets and are generally shared among the two married parties.

In the past, U.S. citizens were permitted to transfer assets during lifetime or upon death to a spouse without estate or gift tax consequences regardless of the spouse’s citizenship. However in 1988, Congress enacted the Technical and Miscellaneous Revenue Act of 1988 to prevent non-citizen surviving spouses from returning to their country of origin to avoid federal taxation of assets held outside of the U.S.

Establishing a Qualified Domestic Trust (QDOT)

In the case where a spouse is a non-U.S. citizen, establishing a Qualified Domestic Trust (QDOT) may be part of proper estate tax planning. Prior to 2017, you could only leave a non-citizen spouse $60,000 estate tax free. Since 2017, however, you can leave your full estate tax exemption amount ($5.9 million in NY) to anyone you choose, including a non-citizen spouse. For couples worth more than the exemption amount, QDOTs may be advisable.

QDOTs name your spouse as the beneficiary and defer the payment of any estate tax until the death of the non-citizen spouse.

It’s always prudent to plan ahead, and more importantly, to disclose to your estate planner if your spouse is a non-U.S. citizen. Any incorrect steps in the process will lead to larger financial issues down the line after the time of death.