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Why Aren't More Millennials Moving On Up And Out?
Lending Money? Watch Your Tax Step
Why Turn Down An Inheritance?
Six Tax Items For Small Businesses
Five Steps When You Inherit Assets
Getting A High Tax Grade For Higher Education Credits
Five Retirement Questions To Answer
Q's And A's About Financial Aid
One Last Shot At A Tax Exemption
When To Disclaim An Inherited IRA
Trust As IRA Beneficiary: Not Crazy
Grandparents Can Become Big Spenders For Their Offspring
5 Retirement Mistakes You Can Fix
This Plan Is Just For Nonprofits
Federal Estate Tax Reduced, But What About State Taxes?
 

Foreign Intrigue In Estate Planning

Are you married to someone who isn't a U.S. citizen? If you are, special estate planning considerations may come into play.

Whether your spouse is a citizen or not, you can use the same basic estate planning documents without any reservations. You can create a will bequeathing assets to your spouse, name him or her as a beneficiary of retirement accounts, and designate your spouse as the agent under a power of attorney. No problems there.

But things get trickier when your spouse inherits assets. Normally, property transferred from one spouse to another, during your lifetimes or when one of you dies, is completely exempt from gift or estate tax thanks to an unlimited marital deduction. But that doesn't apply to non-citizen spouses.

Instead, you can make use of a $5.49 million unified gift and estate tax exemption that covers transfers to any beneficiaries, including a non-citizen spouse.

In addition, you can give a non-citizen spouse as much as $149,000 (in 2017; the amount is indexed for inflation) in gifts during your lifetimes.

Other ways to avoid being subject to the rules for non-citizen spouses may include:

1. Have your spouse become a U.S. citizen. This can be an obvious solution. It allows your spouse to qualify for the unlimited marital deduction by the time your federal estate tax return is due. That's generally nine months after death, but the IRS may grant a six-month extension.

Because it takes time to obtain citizenship—there is a waiting period before you can even apply—it's important to start sooner than later.

2. Rely on a QDOT trust. With a qualified domestic trust (QDOT), you can leave property to the trust, rather than directly to your spouse. Then your spouse can receive income from the QDOT that is exempt from estate tax.

But there are a couple of extra wrinkles. If your non-citizen spouse withdraws principal from the QDOT, it will be taxed like a distribution from your taxable estate, which can increase estate tax liability. There are also limitations on investments made by QDOTs. In some cases, it could make sense to complement a QDOT with other kinds of transfers to your spouse. Finally, a QDOT can be structured to end if your spouse becomes a U.S. citizen.


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This article was written by a professional financial journalist for Old Dominion Capital Management, Inc. This material has been provided for informational purposes only and should not be considered as legal advice, investment advice, or a recommendation of any particular security, strategy or investment product. All investments contain risk and may lose value.

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