The world of taxes work the same regardless of citizenship up to a certain point. The figures may change with time.
How will your estate be taxed if you pass it to your spouse when you die?
- If left to a non-citizen spouse, anything above $11.58 million will be subject to 40% federal estate tax.
- If left to a U.S. citizen spouse, there will be no federal estate tax payable, regardless of the amount, due to a law called the unlimited marital deduction.
What is the unlimited marital deduction?
In life or death, you can leave an unlimited amount to a U.S. citizen spouse. Undocumented immigrants are not entitled to unlimited marital deduction:
- During life, you can only leave $157,000 per year to an undocumented immigrant spouse.
- On death, you can only leave $11.58 million to an undocumented immigrant. They will pay 40% federal-estate tax on anything above that.
Can you avoid federal estate tax when leaving to a non-U.S. citizen spouse?
You can avoid paying 40% tax on anything over $11.58 million through smart estate planning. You need to do this when you are alive. There are three ways:
- Your spouse takes citizenship
- Use a qualified domestic trust
- Reduce estate value by annual gifts when alive
If you and your spouse have worked hard to build your wealth, you do not want to give it to the taxman, just because one of you is not a citizen.