U.S. Citizens with Non-U.S. Citizen Spouses
It is not uncommon for a U.S. citizen to have a non-U.S. citizen spouse. However, U.S. tax law treats non-U.S. citizen spouses (even if they have a green card) less favorably, as non-citizen spouse are not eligible for the “marital deduction”. This means that the tax liability that could otherwise be deferred is brought forward if the U.S. citizen spouse dies first.
Key estate planning considerations for such couples include:
1. Planning for gift taxes: unlimited tax-free gifts may be made to a U.S. citizen spouse each year. However, the annual marital gift tax exclusion is capped at US $157,000 a year (2020 rate), where the recipient is a non-U.S. citizen spouse;
2. Planning for U.S. Federal (and State) Estate taxes: in 2020, the lifetime estate and gift tax exclusion amount is US $11.58 million for an individual, and US $23.16 million for a married couple if both spouses are U.S. citizens and the “marital deduction” is elected on the death of the first spouse. The marital deduction allows an individual to defer estate taxes if their assets are transferred to a surviving spouse on their death. From January 1, 2026, the estate tax exclusions are to revert to the 2017 rates of US $5.49 million (single) and US $10.98 million (spouses), indexed for inflation; and
3. Using alternative means of transferring assets on death, including:
a. joint ownership of assets with a right of survivorship (this approach does however require careful consideration – see our blog Issues with Jointly Held Assets);
b. using a Qualified Domestic Trust (QDOT) for the deferral of estate taxes by the distribution of assets to the decedent U.S. citizen spouse’s beneficiaries on the death of the non-U.S. citizen spouse; or
c. using an irrevocable life insurance trust to pay the estate tax liability upon the death of the U.S. citizen spouse.
Our whitepaper International Estate Planning for U.S.-Australia cross-border clients provides an in-depth analysis of international estate planning issues.
If you have any questions, please contact:
Senior Tax Advisor
U.S. Australia Tax Desk