Estate Planning With a Non-Citizen Spouse

Law Office of Geoffrey Fong April 26, 2023

Close up of couple signing documentsIn 2023, there is no federal estate tax (or “death” tax) unless a person’s assets exceed $12.92 million, which is doubled for a married couple to $25.84 million. The State of California has no estate tax or inheritance tax. The Internal Revenue Service (IRS) also allows $17,000 to be transferred as a gift without taxes annually. 

Now, if a surviving spouse is not a U.S. citizen, the estate tax exemption may not apply unless the IRS determines that the surviving spouse is a bona fide resident of the United States. This depends on a variety of factors, including visa status, community ties, and the location of family members. This can be iffy, as the IRS wants to make sure that no funds leave the country without a tax accounting. 

The way around this dilemma is by establishing a Qualified Domestic Trust (QDOT) while both spouses are alive. The QDOT must be administered by a U.S. citizen or U.S.-based financial institution to qualify. 

If you are married to a non-citizen in or around Rocklin, California, contact the Law Office of Geoffrey Fong to begin your estate planning or review what you have in place to make sure it provides for your spouse when you’re gone.  

The firm’s estate planning attorney is experienced in creating trusts of all sorts, including QDOTs, that protect assets for designated loved ones. The Law Office of Geoffrey Fong also proudly serves clients in the neighboring communities of Roseville, Folsom, and Citrus Heights. 

Can a Non-Citizen Spouse Inherit Assets?

The answer to that is, as outlined above, a bit iffy. It depends on residency status, which is also an iffy determination. It’s safer to put in place a well-crafted estate plan based on a Qualified Domestic Trust (QDOT). 

The designated trustee of the QDOT will manage the assets of the estate, and the trust will provide a safety net for the surviving non-citizen spouse. It will also allow the surviving spouse to take advantage of the marital deduction for any estate taxes owed. 

Should You Create an Estate Plan if You Have a Non-Citizen Spouse?

The answer to that is a definite yes. If you die and leave your estate to a non-citizen spouse outside of a QDOT, the IRS may not honor the marital deduction and thus tax the assets. The trustee of an established QDOT will make distributions to the surviving spouse but retain control of all the assets, thus avoiding any estate taxes. Since the assets are under the control of a U.S. citizen or financial institution, the IRS will not look upon the assets held in the QDOT as funds that can leave the country and avoid taxation. 

Establishing a QDOT

A Qualified Domestic Trust (QDOT) is not a simple one-form-fits-all document, where you just fill in some blanks and off you go. It needs to be properly structured. As noted, it must also be assigned to the trusteeship of a U.S. citizen or U.S. financial institution or professional to administer. If any assets are left out of the trust, those assets can indeed be subject to estate taxes when the grantor of the trust passes on. 

Another requirement is that an irrevocable QDOT election must be made on the deceased spouse’s federal estate tax return, which must be filed within nine months of the first spouse’s death, even if no tax is due. When the surviving non-citizen spouse passes on, then the trust assets will be subject to taxation. The balance will then be available for other designated beneficiaries, probably the children. 

Protect Your Spouse Through Comprehensive Estate Planning

If you are married to a non-citizen spouse, you need to create a Qualified Domestic Trust to avoid issues with the IRS and potential estate taxation. In the Rocklin, California, area and neighboring communities, rely on the estate planning attorney at the Law Office of Geoffrey Fong. 

Attorney Geoffrey Fong will meet with you, listen to your concerns and needs, and fashion the estate planning documents that will provide for your spouse and loved ones when you’re gone. Reach out today.