You already know that estate planning is a complicated process, but that process can be even more difficult when your spouse is a nonresident alien for estate purposes.
Because of the limitations that are imposed on spouse-to-spouse transfers of wealth in any given year or upon death, careful estate planning includes timing consideration and the use of unique asset protection clauses, like a qualified domestic trust (QDOT).
When spouses are both citizens, the amount of money that can be transferred upon death from one to the other without estate taxes is unlimited. However, when a nonresident alien dies, the amount of U.S. situs assets, including stocks and bonds, that can be transferred without estate tax to his or her spouse continues to be limited to $60,000.
Using a QDOT, you can avoid those limitations. Essentially, the nonresident alien spouse would leave his or her assets to a trust, instead of directly to his or her spouse. The spouse is the only beneficiary of the trust for as long as he or she is alive and eligible to receive any income generated from those assets. It's important to note, however, that those protections against an estate tax provided by a QDOT usually don't survive if the principal is dispersed to the surviving spouse sometime in the future.
In addition to things like the QDOT, nonresident spouses of United States citizens can take advantage of things like annual gift exclusions to their resident spouse and children. That can allow them to transfer wealth directly to other members of the family over time, while still living, which can also help reduce the estate taxes that are due when he or she does pass away.
For example, using 2014's figures, cash assets of up to $145,000 could be gifted to a spouse within a year's time without falling subject to gift tax under marital tax deductions. Each child of the nonresident spouse could also be gifted with up to $14,000 per year without being subjected to taxes.
If you're interested in learning more ways to protect your hard-earned assets from tax loss, consider talking to an estate planning attorney today. For more information on how our firm might be able to help, please visit our page.
Source: BB&T, "International Estate Planning," accessed March 10, 2017