For many people, a primary reason for creating an estate plan is to ensure that their spouse is protected in the event something happens to them. If that is one of your primary goals, and you are married to a non-citizen, the need for asset protection strategies within your estate plan is heightened. Unlike many married couples who can always fall back on the unlimited marital deduction to transfer assets to a spouse tax-free, your estate could lose a considerable amount of its assets to estate taxes if you fail to plan. The Essex Junction estate planning attorneys at Unsworth LaPlante, PLLC explain how to provide for your non-citizen spouse in your estate plan.
Marriage in America in the 21st Century
Today, in the 21st century, national borders mean far less than they once did. The internet allows the flow of information and communication across borders to occur at lightning speed while advances in air travel have simultaneously resulted in faster and cheaper ways to move around the globe for business and/or pleasure. Consequently, the number of marriages in the U.S. that include a non-citizen spouse has increased dramatically. According to figures released from the U.S. Census Bureau, over 11 million couples, or 1 in 5 marriages, include a spouse born outside the United States. For the citizen spouse, care must be taken to protect assets intended for a non-citizen spouse.
Why Does My Spouse’s Citizenship Status Matter?
Your spouse’s citizenship status is an issue because if you are married to a non-citizen, you cannot take advantage of the unlimited marital deduction that many married couples depend on to pass assets to a spouse at the time of death. As you likely know, the federal gift and estate tax levies a 40 percent tax on the value of lifetime gifts coupled with the value of assets owned by a taxpayer at the time of death beyond the current lifetime exemption limit. If you are married, however, you are entitled to leave your spouse an unlimited amount of assets at the time of your death without incurring any federal gift and estate tax – IF your spouse is a United States citizen. If your spouse is a non-citizen, you cannot rely on the unlimited marital deduction. Consequently, the inclusion of asset protection strategies and tools in your estate plan becomes even more important.
How Can I Provide for My Non-Citizen Spouse?
The good news is that you can protect your assets and make sure they are used to provide for your spouse after you are gone. The key is working with an asset protection attorney. One popular asset protection tool is a Qualified Domestic Trust, or QDOT. A QDOT trust is a specialized trust that allows you to provide for a non-citizen spouse without the help of the unlimited marital deduction. Your spouse will be entitled to the interest from the trust assets but will not own the assets nor can your spouse access the principal held by the trust absent a showing of extreme hardship. An extreme hardship requires your spouse to show an “immediate and substantial” need for money relating to “health, maintenance, education or support” of either your spouse or someone your spouse is legally obligated to support, such as a child. Upon the death of your surviving spouse, the assets held in the trust will be distributed to the beneficiaries named in the trust, usually children and/or grandchildren. If any federal and/or state estate taxes are due at that time they will need to be paid at the time of distribution. Of course, a QDOT is not the only asset protection option available to help protect your assets and preserve them for your non-citizen spouse.
Contact an Essex Junction Estate Planning Attorney
For more information, please attend one of our upcoming FREE webinars. If you have questions or concerns about protecting your non-citizen spouse in your estate plan, contact an experienced Essex Junction estate planning attorney at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.