Estate Planning for non-US Citizen Spouse
Q. I recently hired an attorney to set up an estate plan for me and my wife. I am a US citizen and my wife is a Japanese citizen who lives in the US with a green card. I don't think the attorney took this into consideration when
he set up the estate plan. A friend of mine who is in the same situation told me that we need a special trust. What kind of special trust do people like us need?
A. Because your spouse is a not a US citizen, your estate plan requires a special type of trust known as a QDOT, which stands for "qualified domestic trust." One of the requirements is that it must have at least one US citizen trustee. If your attorney had not discussed your wife's citizenship with you, you need to review your estate plan.
Only US citizen spouses benefit from the application of the unlimited marital deduction which postpones estate tax until the death of the second spouse and allows unlimited gifts between US citizen spouses.
Not even legal permanent residents (green card holders) who may have been living in the United States most of their lives obtain these useful estate-planning benefits. For green card holders, a marital deduction is allowed for an estate only if the bequest to the spouse is placed in a QDOT.
Moreover, each year a US citizen can only give up to $100,000 of property without a gift tax to his/her non-US citizen spouse.
Therefore, noncitizens or US legal permanent residents who are married to a US citizen should consider setting up a QDOT in order to postpone estate taxes until the second spouse's death.
Other things to consider:
1. Your spouse can become a US citizen. Your spouse will get the benefit of the "unlimited marital deduction" by becoming a US citizen before the due date for filing your estate tax return - normally 9 months after the death. Waiting until the death of the US citizen spouse might be too late given current processing times for US naturalization by the INS.
2. If your spouse is thinking about giving up her green card to avoid taxes, think again. Long- term green card holders can't simply give up their green card upon the death of his/her US citizen spouse to avoid US estate taxes. The definition of long-term residency applies if the individual had a green card in at least 8 years of the 15 tax years preceding the expatriation date (the date you give up your US citizenship). A tax-avoidance motive is presumed for wealthy individuals.
3. You should consider having an attorney review your QDOT and estate plan yearly to make sure that they meet current requirements or need updating.