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Myths and Frequently Asked Questions: Planning for Noncitizen Spouses

Posted by Mona O'Connor | May 29, 2024 | 0 Comments

Myths and Frequently Asked Questions

Planning for Noncitizen Spouses

Myth #1: I do not have to worry about estate planning; my spouse will get everything when I die.

If you do not create an estate plan, you are relying on your state's default rules to dispose of your money and property upon your death. While it is often true that state law provides a certain percentage of a deceased person's money and property to their surviving spouse, the spouse may not receive 100 percent. Also, whatever a surviving spouse is entitled to receive will be given to them all at once. For a noncitizen, this could have costly tax consequences. Another problem is that failing to plan can make a spouse's inheritance vulnerable to being taken by creditors, a subsequent spouse, or a scam artist.

Myth #2: The estate tax exemption amount is incredibly high, so I do not need to worry about tax planning.

While it is true that we currently have a very high estate tax exemption amount ($13.61 million in 2024), the exemption amount is set to sunset to $5 million, adjusted for inflation, at the end of 2025. So, while you may not be concerned about estate tax today, you may find yourself in a much different position in 2026.

Question #1: What are the options to leave my accounts and property to my noncitizen spouse?

You have a few options available when you are planning for a noncitizen spouse. First, you could leave all of your money and property to them outright, which means everything they receive will become theirs with no protections or restrictions. This can be dangerous from an asset protection perspective, and it can have immediate tax consequences depending on the value of everything you own at death. Giving your noncitizen surviving spouse their inheritance in this manner will not qualify for the marital deduction, which means that there may be an estate tax due at your death, reducing the amount available for your noncitizen spouse's use during their lifetime.

Another option you have is to leave money and property to your noncitizen surviving spouse in a qualified domestic trust (QDOT). This type of trust will allow your spouse to receive income from the trust without an estate tax due. It is important to note that while an estate tax would not be due right after your death, an Internal Revenue Code (I.R.C.) § 2056A estate tax would be assessed against distributions of principal that the noncitizen surviving spouse receives (with some exceptions) and on accounts and property remaining in the QDOT at your noncitizen surviving spouse's death.

Question #2: What is a QDOT, and why should I consider one?

A QDOT is a trust created by a US citizen spouse during their lifetime to hold accounts and property on behalf of their non-US citizen spouse. Alternatively, a QDOT can be created by the noncitizen spouse by irrevocably assigning to the QDOT the accounts and property that were left to them by the US citizen spouse at the citizen spouse's death. With either option, the accounts and property passing to a QDOT can qualify for the marital deduction.

While the noncitizen surviving spouse is living, they will receive income from the trust. This income will not be subject to estate tax, but it will be subject to income tax. The I.R.C. § 2056A estate tax is deferred until distributions of principal are made from the QDOT to the noncitizen surviving spouse (with some exceptions) and upon the noncitizen surviving spouse's death.


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About the Author

Mona O'Connor

Mona L. O'Connor joined the firm in 2008 and is currently a partner with O'Connor Law Offices. She is a J.D., C.P.A. and her primary areas of practice include estate planning and trust administration.


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