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Non-US citizen spouses not exempt from federal estate tax

When you plan your estate, you will create a plan for where your assets go. If you have a lot of assets, your plan should have ways to avoid paying the federal estate tax. One way you can avoid this tax is to give your assets to your spouse.

Spouses are exempt from the federal estate tax. But if your spouse is not a U.S. citizen, the government does not allow the estate tax exemption. You will want to make sure you understand your options to protect your assets from the federal estate tax.

Federal taxes can take a large chunk of your estate

In 2019, anyone with an estate worth more than $11.4 million dollars pays an estate tax on anything more than the $11.4 million limit. The government taxes the excess at a rate of 40%. For those with a large amount of assets, this can mean that taxes take a significant amount of the estate before the inheritors get it.

However, if your spouse survives you, you can avoid paying federal estate taxes by passing along all your assets to him or her. The government exempts your spouse from the estate tax. But the government will only exempt spouses who are U.S. citizens. If your spouse hasn’t been able to qualify as a citizen or has not applied due to other reasons, your estate will be subject to federal estate tax.

How to avoid paying the federal estate tax

You have a few options to avoid the estate tax if your spouse is not a U.S. citizen. These can include:

  • Setting up a QDOT – A qualified domestic trust (QDOT) defers the estate tax until your spouse dies or takes money out. But if your spouse becomes a U.S. citizen, then your estate tax is eliminated.
  • Giving your spouse tax-excluded gifts over time – In 2019, you can give your spouse up to $155,000 per year without paying gift taxes. If you start early enough, you can transfer enough money to your spouse to get your estate under the $11.4 million limit for estate taxes.
  • Your spouse becoming a U.S. citizen – Your spouse has a limited amount of time to become a citizen after you die to use the estate tax exemption. Typically, this is nine months after your death.

If you have a lot of assets, you don’t want to give them up to estate taxes. A good estate plan can protect your assets from the high federal estate tax. And regardless of your spouse’s citizenship status, there are ways you can pass along your assets to your spouse while avoiding taxes.

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  • Walter J. Roesch IV
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