In many marriages in the San Diego area, one spouse is a U.S. citizen and one isn’t. If you’re preparing to create an estate plan, is it relevant to the inheritance you plan to leave your spouse that they aren’t a citizen? Maybe they’re somewhere in the long process necessary to become a naturalized citizen or perhaps they are perfectly content being a permanent resident.
Whatever the case, you can leave all or part of your estate to a non-citizen spouse. However, you need to be aware of some important estate tax issues and plan accordingly.
Surviving spouses typically don’t have to pay estate taxes on their inheritance from their deceased spouse. However, non-citizen spouses aren’t eligible for that 100% “marital deduction.” That means a fair amount of their inheritance could go to estate taxes.
What a qualified domestic trust does
You can avoid that issue by establishing a qualified domestic trust (QDOT) for your spouse. They don’t pay estate taxes on the assets in the QDOT during their lifetime. Estate taxes will kick in for whoever inherits those assets when they pass away.
Gifts are another option
Another possibility is to give your spouse assets while you’re alive. As long as you stay within the annual and lifetime limits on these gifts, your spouse won’t have to pay taxes on them.
It’s best to seek legal guidance to determine what is best given your unique situation. One thing you probably shouldn’t do, however, is wait until your spouse’s citizenship process is finalized before you do any estate planning. It’s wise for you and your spouse to both have at least some basic estate planning documents in place. They can and should be amended as your lives change in the future.