In general, a person may make unlimited transfers of property, both during life and upon death, to a spouse free of federal estate and gift tax. However, this rule is not true when one of the spouses is not a U.S. Citizen. Transfers upon death to an alien spouse, whether such spouse is a resident or nonresident alien, are subject to federal estate tax.
Sophisticated Estate Plans
Couples with a non-U.S. citizen spouse and combined assets of less than the federal exclusion amount (currently $5 million) do not necessarily require a sophisticated estate plan. Generally, a simple Last Will and Testament will do. However, assets exceeding the exclusion amount which are passed to a non-U.S. citizen spouse will be subject to federal estate tax unless they are placed in a qualified trust.
Federal Estate Taxes
Federal estate taxes can be as much as 40% of the value of the estate. It is important to note that the United States taxes all types of assets including life insurance proceeds, retirement benefits as well as assets owned in foreign countries. In addition, jointly-held assets are fully taxed in the estate of the first spouse unless the non-U.S. spouse can prove he or she contributed to those assets.
If you are a couple with a non-citizen spouse, it is important that your estate plan is prepared by an attorney who understands the legal and tax implications of your situation.
Maryland Estate Taxes
Although many couples will not have enough assets to trigger Federal Estate Taxes, Maryland imposes Estate Taxes on estates over $1 Million. Couples with a non-US Citizen spouse may need to do tax planning to avoid or mitigate this tax.
Find out how Kathy can help non-us citizens with a free consultation.
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