Avoiding extra tax burden for non U.S. citizens’ spouses

As the world comes closer together and embraces diversity, it is not uncommon for a citizen of the U.S. to marry a person who is not a citizen here.

The Internal Revenue Service’s term for a person living in the U.S. as a non-citizen is a “resident alien,” which can imply unusual tax implications in marriage. The normal tax guidelines may not apply so there is pertinent information one should know when estate planning so as to avoid hefty tax fines.

While some taxation rules will cover citizens and resident aliens, estate tax is vastly different. If a person dies and leaves a taxable estate of several million dollars, the IRS can claim up to 40 percent of it. One tip to avoid paying large federal estate tax can be to leave your wealth to your children via a trust agreement upon your death. In most cases, the surviving spouse will receive the rest. The IRS is fine with your leaving as much of your remaining tax–free estate to your spouse as long as he or she is a citizen.

This unlimited marital deduction privilege does not apply to a non-citizen spouse.

Possible solutions could be to persuade your spouse to become a citizen, which can be achieved up to nine months after your demise. Another option could be to make large gifts to your spouse over time, which are generally non-taxable.

Finally, a qualified domestic trust can be established in your will. The QDOT money is deferred until your surviving spouse needs to withdraw funds, or he or she passes. This will not eliminate payment, just delay it.

Love has no bounds and interracial marriages are one form of proof. Unfortunately, the IRS is not known for its romantic tendencies, but if you inform yourself in advance about non-citizen spouse estate tax threats, you can potentially lead a long and happy life without worrying about estate planning. Assistance from an experienced estate planner or attorney in Texas will also take away any unexpected or disarming surprises down the road.

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