Estate Planning for Non-Citizen Spouses

When one or both spouses in a married couple living in the United States are not citizens of the United States, special planning may be required to avoid hefty tax consequences for transfers during lifetime or at death of the spouses. This is because Gift and Estate tax laws treat non-citizens (permanent & temporary residents) residing in the United States differently than citizens.

Because the taxation system regards both spouses in a married couple as one, a spouse who is a citizen can receive unlimited tax-free transfers of assets & property from his or her spouse. This is known as the unlimited martial deduction. However, the rationale for treating non-citizens spouses differently is the government’s concern that a non-citizen spouse will receive this wealth without having been taxed and then subsequently move out of the U.S. and/or transfer it where it may never be taxed by the U.S. government. Therefore, this marital deduction is not an option for non-citizen spouses.

Here are some commonly used techniques to consider when trying to replicate the benefits afforded to citizen spouses to non-citizen spouses: