In the United States, laws related to wills, transferable assets, and related taxes apply differently between citizens and non-citizens. In other words, those who have immigrated to this country but are not naturalized citizens may face some different needs or unique challenges in the estate planning process.
Indeed, non-citizens deal with extra hurdles that citizens are usually able to avoid. Unfortunately, not all non-residents are aware of these laws, and that can complicate things when they go to establish their estate plans.
With that said, a basic understanding of estate planning for non-U.S. citizens—coupled with guidance from an estate planning attorney—can make it very possible even for immigrants to compile a meaningful and effective estate plan.
Who are Non-Resident Aliens and Non-Citizens?
Maybe this one is easier to answer in reverse. A citizen is defined as:
- Anyone born in the United States
- Anyone born to parents who are U.S. citizens
- Former aliens who have been naturalized as U.S. citizens
- Individuals born in Puerto Rico, Guam, or the U.S. Virgin Islands
Basically anyone who doesn’t fit into the above categories is, for our purposes today, a non-citizen of the United States, and thus may face some unique estate planning hurdles.
A Unique Tax Situation
There are many ways in which taxation works differently between citizens and non-citizens. For the purposes of estate planning, the key issues are estate and gift taxes.
First let’s look at estate taxes. It is normal for anyone to have concerns about estate taxes after death. An estate tax is imposed on all assets of citizens and non-citizens alike, regardless of where those assets are held. Non-citizens must pay an estate tax on all U.S. assets, including property located in the U.S., shares of U.S. stocks, the value of any U.S.-based insurance policy or annuities, etc. However, it is important to note that there can be tax-free transfers between spouses. It is also important to understand that, in some cases, telling the difference between U.S.-situated and non-U.S. situated assets can actually be tricky, and may require insight from an estate planning attorney.
Next, let’s look at gift taxes. Non-citizens are legally permitted to transfer intangible properties without paying a gift tax. This means stocks, life insurance policies, etc. This is one area where the estate planning requirements for non-citizens may actually be less onerous than the ones for citizens. For tangible assets, however, gift taxes apply; your estate planning attorney can talk with you more about this.
The Qualified Domestic Trust
Next, let’s look at Qualified Domestic Trusts, sometimes called QDOTs. These trusts were created by Congress to allow U.S. citizens to lease assets to their non-citizen spouses—without having to pay estate taxes. These trusts allow you to leave assets beyond the normal estate planning exemptions, and can provide some significant estate planning advantages to married couples, especially when one spouse is not a citizen.
With any questions about QDOTs, living trusts, trust administration, or general non-citizen estate planning concerns, reach out to the estate planning attorneys at Singh Law Firm today.