Understanding the Tax Impact of Non-Citizen Spouses in Estate Planning

What You Need to Know When Your Spouse Isn’t a U.S. Citizen

When it comes to estate planning, one of the most important goals is making sure your loved ones are taken care of after you’re gone. But if your spouse isn’t a U.S. citizen, some of the rules are different, and if you’re not careful, those differences can lead to unexpected taxes and complications.

Here’s what you need to know.

Normally, when one spouse passes away, they can leave an unlimited amount of assets to the surviving spouse without any estate tax. This is called the “unlimited marital deduction,” and it’s one of the cornerstones of most estate plans.

But here’s the catch: The unlimited marital deduction only applies if the surviving spouse is a U.S. citizen.

If your spouse is not a citizen (even if they’ve lived in the U.S. for decades or have a green card) this deduction is not automatically available. That means the estate could owe significant federal estate taxes after the first spouse dies, just because of citizenship status.

So why does the IRS treat non-citizen spouses differently? The main reason is that the IRS wants to make sure it can collect taxes. A U.S. citizen spouse is more likely to remain in the country and follow U.S. tax laws. A non-citizen spouse might return to their home country, putting future tax payments out of reach. To avoid this, the IRS limits the tax-free transfer of assets at death unless certain conditions are met.

Thankfully, there’s a way to preserve the tax benefits of the marital deduction—even if your spouse isn’t a U.S. citizen. It’s called a Qualified Domestic Trust, or QDOT.

A QDOT is a special type of trust that allows a non-citizen spouse to receive assets from their deceased spouse without triggering immediate estate taxes. Here’s how it works:

• The assets are placed into the QDOT instead of going directly to the surviving spouse.
• The trust must meet specific IRS requirements, including having a U.S. Trustee.
• Income from the trust can be distributed to the surviving spouse.
• Principal can also be distributed, but under stricter conditions (and may be taxed).
• Any estate taxes that would have been due are delayed until the surviving spouse takes certain distributions or passes away.

This gives the surviving spouse access to the assets while also giving the IRS assurance that it can collect taxes later, if necessary.

So, if you or your spouse is not a U.S. citizen, it’s important to bring this up when creating or updating your estate plan. Without the right tools, like a QDOT, you could unknowingly leave your family with a large tax bill at a very difficult time.

Even better: early planning gives you options. In some cases, a non-citizen spouse may choose to become a U.S. citizen as part of the overall strategy. Or, couples may decide to shift how assets are owned or gifted during life to reduce estate tax exposure.

Estate planning is never one-size-fits-all, which is especially true for families with international ties. Whether you’re just getting started or you’ve had a plan in place for years, make sure your plan reflects your family’s unique situation.