If you are married to a non-U.S. Citizen, estate planning in California is going to be more complex for you than it is for other couples, especially if you have a significant amount of property and assets. However, you do have two major options when it comes to preserving your wealth and making sure your spouse is well-supported even after your death: you can either create a Qualified Domestic Trust (QDOT) or have your spouse take the necessary steps to become a citizen of the United States. There are pros and cons to both choices. Let’s take a closer look.
The Benefits and Drawbacks to Creating a Qualified Domestic Trust
A QDOT is a trust that defers the federal estate tax after one spouse dies and ensure that even a non-U.S. citizen can inherit your assets following your death. This method is a good solution for couples who would be heavily penalized by the estate tax as well as couples in which one spouse does not wish to become a United States citizen for personal reasons (or cannot become a citizen for some reason). This method is also ideal because, while attaining citizenship can take years, a QDOT can be set up in much less time.
However, there are some drawbacks to a QDOT. First and foremost, your inheritance won’t be readily available to your spouse upon your death. Although your spouse can benefit from the trust, for example, by collecting interest accrued by the trust, your spouse does not have direct access to the funds. In addition, any interest earned by the trust is subject to income tax. Any funds taken directly from the trust are subject to estate taxes.
The Benefits and Drawbacks to Gaining United States Citizenship
The second way that international couples can avoid estate taxes when one spouse dies is simply by having the non-U.S. citizen gain citizenship. When both spouses are United States citizens, they benefit from unlimited marital deduction: a rule that states that you can transfer an unlimited amount of assets and wealth to your spouse upon your death without facing an estate tax or gift tax. Taking advantage of unlimited marital deduction means not having to follow the strict rules associated with QDOTs. It also means that your spouse can freely access your assets after your death.
On the other hand, seeking out United States citizenship might not be an ideal solution for all international couples. First, the citizenship process can take years and involves a considerable amount of time and effort. Secondly, some people may not wish to become citizens, especially if they are from countries that do not allow dual citizenship. Thirdly, some non-citizens may not be able to become citizens for one reason or another.
Palo Alto estate planning for international couples
The Law Office of Janet Brewer is available to help you with your international estate planning, from making sure that your assets are protected from estate taxes when possible, to ensuring that your non-citizen spouse is cared for after your passing. To learn more about our legal services, or to request a consultation, call us today: (650) 325-8276.