Estate Planning for Noncitizens

Planning for the future is crucial, especially when it involves assets in a country where you're not a citizen. For noncitizens residing in the United States, estate planning can present unique challenges. Whether you're a nonresident alien or a green card holder, understanding the intricacies of estate planning is essential to protect your legacy and minimize tax liabilities.

Unlike U.S. citizens and permanent residents, who benefit from a generous estate tax exemption of $12.92 million ($25.84 million per married couple) as of 2023, nonresident individuals face a significantly lower exemption of only $60,000 for estate tax purposes on their U.S. property. Additionally, green card holders are subject to U.S. estate tax on their global assets, potentially leading to concerns about double taxation.

The complexity increases when one spouse is not a U.S. citizen. Typically, U.S. citizens or residents can transfer assets between themselves without facing estate or gift tax, thanks to the unlimited marital deduction. However, if the receiving spouse isn't a U.S. citizen or resident, special provisions must be made to qualify for this deduction. Enter the Qualified Domestic Trust, or "QDOT."

A QDOT allows a noncitizen surviving spouse to benefit from the unlimited marital deduction for estate taxes on assets placed within the trust. According to IRS section 2056A, a surviving spouse can claim a 100% marital deduction for any estate taxes owed on such assets. Establishing a QDOT involves meeting specific provisions:

• The trust must be governed by the laws of a U.S. state or the District of Columbia.

• It must qualify as an ordinary trust.

• The terms of the trust must meet certain criteria.

• At least one trustee must be a U.S. citizen or corporation.

• Distributions from the trust, other than income, must be subject to withholding of the Sec. 2056A estate tax.

Further requirements vary based on the value of the QDOT:

• For properties exceeding $2 million, specific trustee conditions or financial assurances are necessary.

• For properties valued at $2 million or less, restrictions on the composition of trust property may apply.

It's important to note that federal estate tax on QDOT assets is deferred until the noncitizen surviving spouse withdraws funds or passes away. At that point, the QDOT assets are included in the estate for tax purposes, and the deferred tax becomes due. However, if the surviving spouse later becomes a citizen, they can access the QDOT assets without incurring the previously deferred tax liability.

In summary, a QDOT provides a mechanism for noncitizen spouses to benefit from the same estate tax advantages available to U.S. citizens, with specific requirements and considerations. Consulting with a qualified estate planning attorney, like Leslie Sultan, Esq., can help navigate these complexities and ensure that your estate plan aligns with your unique circumstances and objectives.

Ready to secure your legacy? Contact the Law Offices of Leslie Sultan today to discuss your estate planning needs.

About the Author

Leslie has been practicing law since 2009 and is the host of the estate planning podcast 'Legacy Purse'. She has a long history of representing family members struggling to inherit property and/or wealth from deceased family members through the Probate Courts. Knowing how time-consuming and expensive the probate process is, Leslie takes great pride in helping her clients learn how to plan and protect their families during their lives so they can avoid the probate court process and save their loved ones that additional grief (and expense).