The estate tax laws differ for U.S. citizens vs. non-U.S. citizens. When there is a large estate, this could mean a hefty estate tax liability for a surviving non-U.S. citizen spouse.
So, what exactly is the estate tax difference between a U.S. citizen surviving spouse and a non-citizen surviving spouse?
When a surviving spouse is a U.S. citizen, he or she does not have to pay the estate tax immediately. Instead, the tax can wait until the surviving spouse passes away. However, the same does not hold true if a surviving spouse is not a U.S. citizen.
In that case, the IRS expects to receive the full amount of the estate tax right away.
Obviously, this can have devastating effects on the non-U.S. citizen spouse.
Recently, Life Health Pro offered suggestions on how to help alleviate this estate tax problem in an article titled “2 ways to help protect non-U.S. spouses from estate tax liability.”
The first suggestion is to create a Qualified Domestic Trust, known as a “QDOT.” This trust allows your spouse to defer the estate tax until his or her own death. Your spouse can receive the income from the trust.
However, your spouse will not be able to receive any principle from the trust except in cases of emergency or hardship. Another downside is that any assets from the trust cannot be transferred outside of the United States.
The other suggestion offered is to purchase a life insurance policy in the amount of the anticipated estate tax. This will make sure your spouse has the money on hand to pay the tax.
If you have questions about these options, contact an estate planning attorney who has experience working with international couples.