Posted on

Estate Planning for Non-Citizen Spouses

When one or both spouses in a married couple living in the United States are not citizens of the United States, special planning may be required to avoid hefty tax consequences for transfers during lifetime or at death of the spouses. This is because Gift and Estate tax laws treat non-citizens (permanent & temporary residents) residing in the United States differently than citizens.

Because the taxation system regards both spouses in a married couple as one, a spouse who is a citizen can receive unlimited tax-free transfers of assets & property from his or her spouse. This is known as the unlimited martial deduction. However, the rationale for treating non-citizens spouses differently is the government’s concern that a non-citizen spouse will receive this wealth without having been taxed and then subsequently move out of the U.S. and/or transfer it where it may never be taxed by the U.S. government. Therefore, this marital deduction is not an option for non-citizen spouses.

Here are some commonly used techniques to consider when trying to replicate the benefits afforded to citizen spouses to non-citizen spouses:

– Equalize the Estates for both spouses during their lifetimes. Although the amount changes every year to adjust for inflation, in 2009 a spouse may transfer by gift up to $133,000 of property to her non-citizen spouse without incurrence of a gift tax. This amount should be used to “even up” each spouse’s estate if the value of assets titled in each of the spouses names spouses is not even.

– Maximize the Estate Tax exemption. In 2009, upon his death, a spouse may transfer to his non-citizen spouse an amount up to the amount of the federal estate tax exemption amount without triggering the federal estate tax. Note that while this exemption amount is $3.5 million for 2009, the legislature is reportedly currently acting to either make this amount permanent or to reduce it.

– Use of a QDOT Trust. In addition to giving a non-citizen spouse the option to disclaim or “pass” on what he may be getting by including a disclaimer trust, a Qualified Domestic Trust or QDOT may also be used to postpone the estate tax when more than the amount of the personal federal estate tax exemption is left to a non-U.S. citizen spouse by the other spouse. This option allows flexibility for citizenship changes of the surviving spouse, law changes after death, and a re-evaluation of financial circumstances.

In conclusion, although Estate & Gift tax laws are intended to treat citizen spouses differently that non-citizen spouses, the implementation of available techniques with careful planning can produce favorable results under the current law while retaining flexibility for changing circumstances.

Posted on

What Happens If I Die Without a Will?

A Last Will & Testament (commonly referred to as simply a Will) is a document that disposes of your property at the time of your death.

A common misconception is that Wills and proper Estate Planning are only necessary for the wealthy. This is not true. Whether your estate is large or small, it is beneficial to have a properly drawn Will. Not having the Will properly drafted and executed can cause delays, great expense and possibly force the Will to be interpreted through the courts.
If an individual dies without a Will there are certain consequences that may occur. Consider the following:

  • If you have not named a guardian for you minor children (as you would in a Will) , if both parents die, the courts or a social worker may have the temporary & final decision as to who should act as guardian for your minor children, not you or your family.
  • Without a Will naming an Executor, the court will appoint an Administrator for your estate who may not know your intentions.
  • After the administrator of your estate has distributed your assets in accordance with state law, your spouse may not have enough funds to live comfortably.
  • Without a Will you cannot leave personal items such as a family heirloom, specific jewelry, artwork, etc. to a particular individual such as a nephew, cousin, or family friend.

When creating a Will, it is also important to execute a Living Willand Power of Attorney. These 2 documents are also essential to any basic Estate Plan.

A Living Will (also known as a Health Care Proxy or Advanced Health Care Directive) allows an individual to appoint someone to make all health care decisions on their behalf in the event they are unable to understand and appreciate the nature and consequences of the health care decisions. You may also provide specific instructions as to your intentions.

A Power of Attorney allows an individual to designate an agent to conduct all business and financial decisions such as purchasing, improving, maintaining any real or personal property, banking, or any lawful business transactions. It can be Springing (takes effect only upon disability or incapacity) or Durable (effective immediately & remains effective upon disability or incapacity). Not having one of these in place can result in required costly court proceedings.

A minor mistake in drafting and executing your estate plan may invalidate your good intentions & your lifetime of hard work & savings. A little advanced planning can ensure your family’s goals are accomplished.