Estate Planning Guidelines When you Have a Non-Citizen Spouse

 Posted on February 28, 2014 in Estate Planning

Standard estate planning tax advice might not work for situations in which one or both spouses are resident aliens. The term resident alien is used by the U.S. government to describe non-citizens who are permanent U.S. residents, and it could be beneficial for those in this circumstance to get some guidance from an estate planning attorney.

Under federal tax law, resident aliens and American citizens are governed by the same estate tax rules. In cases where the taxable estate assets are above $5.34 million, the IRS will want 40% of those excess funds. With careful planning, the implications of the federal estate tax can be avoided or minimized.

U.S. citizens are eligible to take advantage of the unlimited marital deduction, which allows for as many tax-free transfers to your spouse during your lifetime as you would like. Unfortunately, non-citizen spouses can't take advantage of this program. This can be a big hit when it comes to the estate tax, since the IRS will always want to go after 40% of the excess.

There are several solutions to this issue if you are already married to a non-citizen. First, your spouse can become a citizen. This can even occur after you have passed away provided that it is done before the due date for your federal estate tax return, allowing your spouse to reap the rewards of the unlimited marital deduction.

Second, you can reduce your taxable estate by making big gifts to your spouse while you are alive- married couples can transfer $145,000 to one another in 2014. Finally, you could set up a qualified domestic trust, deferring the federal estate tax on any assets inside until your spouse removes them or passes away.