In the United States, married individuals almost always receive assets from their spouses without paying estate tax. One exception is the often-overlooked law involving marriage between a citizen of the United States and a foreign national. If you find yourself in this situation, it can create a unique challenge during estate planning.
The Foreign National Exception
Under federal law, if an American citizen is married to a foreign national and the first to die in the couple, the surviving foreign national is prohibited from using the standard marital deduction to inherit property. If the couple lives in the United States, the entire asset is subject to this regulation. If the couple lives overseas, however, only US-based assets are impacted by this law.
Who Is Impacted by this Law
There are two elements that a couple must satisfy to be impacted by this law. Firstly, an American citizen must be married to a foreign national. Second, the couple currently must have $11.4 million in estate taxes. In 2026, however, this amount will greatly lower to $5.49 million, which means that it will affect many more married individuals who are in couples of this type.
Options for Couples of this Type
If a couple finds themselves subject to this exception, they have several options that can be utilized to achieve estate planning goals:
The foreign spouse can become a U.S. citizen. While many couples decide on dual citizenship, this is not always a possibility. If a foreign spouse will lose citizenship of their original country but decides to acquire U.S. citizenship, it is critical to understand this process before the American spouse passes away. This is because following the US spouse’s death, the other spouse will only have 15 months in which to become a citizen, pay estate taxes, or transfer the assets into a trust.
Qualified domestic trusts (QDOT) can also be an attractive option for couples in this situation. Assets placed in a QDOT will be reserved for the surviving spouse, who will receive income from the trust but will not be able to spend the principal amount without demonstrating a hardship. QDOTs can be created either before or after a US citizen’s death. The amount in the QDOT is then taxed twice after the surviving spouse passes away.
In some rare situations, an estate tax treaty between the United States and the foreign spouse’s home country might state the foreign spouse can inherit the assets without facing any taxes.
One of the best ways to avoid paying a large amount in taxes is for the US spouse to title more assets in the foreign-born spouse’s name. This is because the more that the foreign spouse owns, the less estate tax will be due.
Speak with an Estate Planning Lawyer
There are many nuances involved with estate planning law. If you need the assistance of an experienced estate lawyer, do not hesitate to contact Ettinger Estate Planning today to schedule a free initial consultation.