Planning for a Non-U.S. Citizen Spouse: Justin Crain, Partner

Planning for a Non-U.S. Citizen Spouse: Justin Crain, Partner

Spouses who are U.S. citizens can generally give property to each other during life and during death without having to pay any estate tax or gift tax. But what if one spouse is a U.S. citizen and the other spouse is not?

When only one spouse is a U.S. citizen, there are special rules that change how the both gift and estate taxed apply. Gift taxes and estate taxes are not the same tax. However, they do work together in tandem. Some examples of these lessor known rules are:

  • A U.S. citizen can gift (during his or her lifetime) up to $157,000 to their non-citizen spouse annually without a gift tax applying. (26 USC 2523)
  • If a non-U.S. spouse receives U..S assets at the time of the U.S. citizen’s death, $60,000 of value is excluded from the estate tax. Everything above that amount is taxed. (26 USC 2102)

To illustrate how different rules apply, consider a scenario where a U.S. citizen spouse dies, leaving the surviving, non-citizen spouse as the survivor. The value of the house owned by the U.S. citizen over $60,000 will be subject to the estate tax. Consider a $300,000 house owned in Texas. Each spouse owns 50% as their community property (worth $150,000). When the U.S. citizen dies, they leave their half of the house to their surviving non-citizen spouse (a value of $150,000). $60,000 of that value is excluded from estate tax, leaving a $90,000 value that is taxed at the applicable estate tax rate.

Taxes are complex and unforeseen complications are not uncommon. This is just one of many reasons why a person should make sure that they work with a qualified professional when planning their estate. There is more to planning than simply saying who gets what is yours after you die. The good news is there are solutions for married couples where a non-citizen spouse is involved, such as Qualified Domestic Trusts (QDOT), careful life insurance planning, and other legal tools that can reduce the impact of estate taxes that would apply without proper advance planning.

Are you planning with a non-citizen spouse? Have questions? Call, email us, or comment below!

2 Comments
  • mark
    Posted at 12:10h, 19 October Reply

    i thought death tax and gift tax was exempt under $5 million?

    • admin
      Posted at 12:31h, 19 October Reply

      Hello! Thanks for your comment. The gift and estate tax code can be difficult to keep straight. We would recommend reading our white paper “Death and Taxes” to get a more in-depth understanding of the topic. You can find this white paper here: https://estateplanningdfw.law/wp-content/uploads/2020/08/Death-and-Taxes.pdf. This white paper outlines the estate and gift tax law for US Citizens.

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