There are many noncitizens who live and work in the United States. Many of them are married to U.S. citizens. When it comes to estate planning for these couples, one needs to be very careful as the estate planning rules for married couples who are both U.S. citizens is quite different from those that apply to married couples where one spouse is a noncitizen.
The biggest difference is in the treatment of transfers to spouses. If both spouses are U.S. citizens they have an unlimited marital deduction. The unlimited marital deduction allows either spouse to gift during life or leave upon death as much as they want to the other spouse without triggering gift or estate taxes. With married couples where one spouse is a noncitizen only gifts or bequests to the U.S. citizen spouse are unlimited. If the citizen spouse wants to make a gift to the noncitizen spouse during lifetime, they are limited to a $136,000 annual exclusion (indexed for inflation). If the citizen spouse wants to bequest—leave something upon death—to the noncitizen spouse, they can only leave up to the estate tax exemption amount of $5.34 million (indexed for inflation). If the citizen spouse wishes to bequest more than the estate tax exemption amount to the noncitizen spouse the noncitizen spouse will have to pay estate taxes on the excess.
If a Qualified Domestic Trust (QDT) is utilized, the property that exceeds the estate tax exemption amount, that is transferred to the QDT, will qualify for the unlimited marital deduction and no estate tax will have to be paid at that point in time.
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