Estate planning can be a complicated process for high-asset couples, especially when one of the spouses is not a U.S. citizen. One primary concern is that noncitizen spouses may not be able to receive marital assets tax-free, whether as a gift or as an heir to an estate plan.
Spouses who are U.S. citizens can receive an unlimited amount of assets free from taxes while their husband or wife is still alive or after their death. However, the tax-free amount is limited for noncitizens at $155,000 for a gift, while an estate over $11.4 million is subject to standard U.S. estate taxes.
Consider trust options to avoid taxes
In order to avoid significant estate or gift taxes, two types of trusts can be considered:
- Irrevocable life insurance trust: An ILIT is a living trust which is designated as the life insurance policy’s beneficiary. When a spouse dies, the death benefit goes into the trust and is not counted as part of the estate, avoiding estate taxes. ILITs can take over existing policies or be newly created, and since they are irrevocable, they cannot be changed.
- Qualified domestic trust: A QDOT is a specific kind of trust allowing noncitizen surviving spouses to receive a full marital deduction on estate taxes. However, only assets included in the trust are eligible for the deduction, and at least one trustee must be an American citizen or an authorized U.S. corporation.
Thorough estate planning can benefit noncitizen spouses
A strong and carefully crafted estate plan can benefit high-asset couples, especially when one spouse is not a U.S. citizen. An experienced attorney here in New York who specializes in estate planning law for American and foreign-born individuals can help you select a plan that meets the needs of your family.