There are a lot of misconceptions about people’s right to inherit assets if they aren’t U.S. citizens. That’s why it’s important to know the facts.
If you’re a U.S. citizen, whether by birth or naturalization, and your spouse isn’t, you likely have some questions about how to include them in your estate plan. If they’re in the process of getting their U.S. citizenship, you may be waiting until that’s accomplished before putting your estate plan in place.
Don’t delay estate planning until your spouse gets their citizenship
The problem with delaying your estate planning is that you never know what’s around the corner. If you don’t have one (at least a will) when you die, the laws of the state determine how your assets are disbursed, and there can be significant tax consequences that cost your loved ones part of their inheritance.
It’s always better to have an estate plan that’s right for your family now and then modify it as things change over the years (like your spouse obtaining their citizenship). Let’s look at how you can protect your non-citizen spouse in your estate plan.
How a QDOT minimizes estate taxes
Under U.S. tax law, surviving spouses who are citizens are exempt from paying estate taxes on assets up to the exemption limit (which is nearly $13 million in 2023). However, surviving spouses who aren’t citizens don’t get this exemption – unless the assets are in a specialized trust. If the assets are place in a qualified domestic trust (QDOT), the surviving spouse benefits from the same exemption as spouses who are citizens get.
It’s important to note that a QDOT must be funded when it’s established. That means you need to determine how best to set it up and choose your trustee carefully.
There’s a lot more to know about QDOTs as well as other options you can use to transfer money to a non-citizen spouse in a way that minimizes their tax burden. Having experienced legal guidance can help you do what’s best for your family.