Berman & Asbel, LLP

Citizenship and the estate planning process

It might not even occur to most people during the estate planning process to mention to an attorney that you or a spouse is not a U.S. citizen. Particularly for those with legal permanent residency who have been living in the country for a long time, citizenship can easily be an afterthought. However, it is a very important issue that should be a part of the estate planning process as it can have a major impact on estate taxes. The main impact that citizenship status has is whether or not a spouse may utilize the unlimited marital gift tax exemption, allowing a spouse to pass along all of their assets to the other without taxation. This is only available to U.S. citizens, so people who are married to a legal permanent resident or someone with a different immigration status should take note of this.

There are various solutions to this issue, including the most obvious which would be making sure that both spouses are naturalized citizens. However, that solution is not right for every family for various reasons, so others must be considered as well.

One option is to create a trust that speaks to this issue, such as a qualified domestic trust. This type of trust can be formed on their own, using a will or by the executor of the estate. The advantage to establishing this type of trust is that the assets in the trust are not taxed until the beneficiary makes a withdrawal or liquidates the assets in the trust. This functions to defer, but not totally eliminate the estate tax toll on the assets, but during that time the assets may appreciate and become more valuable. 

Source: Wall Street Journal Market Watch, “Estate planning with a non-citizen spouse,” Bill Bischoff, Feb. 19, 2014.

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