Estate Planning for Non U.S. Citizens

Many myths exist about the rights and responsibilities of U.S. citizens. For example, if you are not a U.S. citizen but are married to a U.S. citizen and have permanent resident status, you might have heard that if your spouse passes away without an adequate estate plan you will be required to pay more taxes on your property than if you were a citizen of the United States. 


In reality, if you are the owner of property located in the U.S. but are neither a citizen nor permanent resident, you cannot claim exactly the same advantages in taxes as citizens of the United States. Consequently, you might end up immediately facing estate taxes if your spouse passes away. Various notable estate planning issues occur when either non-citizens or permanent residents are married to U.S. citizens. This article reviews some of the most common ones.


Permanent residents (or holders of green) are viewed as almost identical for tax purposes as United States citizens. These individuals must pay the U.S. tax on income earned anywhere in the world as well as U.S. estate and gift tax on assets owned anywhere in the world. 


Transfer Taxes


Several unique issues, however, arise for permanent residents. First, for married couples where both individuals are U.S. citizens, they are able to  transfer assets between one another without paying estate or gift taxes. This is because the United States grants an unlimited marital deduction for assets passed between spouses. If the spouse who receives assets is not an actual U.S. citizen, however, a limited amount can be transferred without being subjecto tax. Consequently, for permanent residents who lose citizen spouses, it’s critical to understand the tax implications of receiving assets from the deceased spouse.


While holders of green cards can transfer $5,2500,00 without facing U.S. estate taxes, they are subject to U.S. estate taxes on assets owned anywhere in the world. 


The holders of green card might also end up being forced to pay  estate tax in their home country unless the United States and the home country have agreed to the terms of a treaty addressing estate tax. These treaties prevent both countries from taxing the assets when the citizen passes away. Treaties also might reduce or potentially even eliminate taxes on property in the U.S. owned by a non-resident.


Exit Taxes


Second, exit taxes refer to taxes that permanent residents must pay on giving up classification as a permanent resident. An exit tax is essentially a capital gains tax on any asset appreciation provided the asset is owned by a permanent resident. Permanent spouses who decide to return to their home country after a citizen spouse passes away should understand that they might be required to pay an exit tax. 


It’s also worth appreciating that when one spouse is a permanent resident, estate taxes might become due as soon as possible following the citizen’s demise. This is because the United States government is often worried that the permanent resident spouse will return to that individual’s home country to live out the rest of that person’s life, which will leave the United States government not able to gather any amount of money to go towards taxes.


Contact an Experienced Estate Planning Attorney


No two estate plans are exactly the same and countless challenges can arise involving how estates are treated. If you or a loved one needs the assistance of an experienced estate planning attorney, you should not hesitate to contact Ettinger Law Firm today to schedule a free case evaluation.

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