Dear Len and Rosie,
We have a family trust with myself and my wife as trustees. We have lived in California since 1958, having immigrated from Germany. I am a naturalized U.S. citizen but my wife is still German.
Rumor has it that in case of my death, my wife will not be entitled to inherit my assets because of her German citizenship. Can you tell me the truth?
Some countries restrict the ownership of property to citizens, but in the United States, anyone can own anything regardless of his or her citizenship or immigration status. Even if your wife were in this country illegally, she would still inherit everything you choose to leave her upon your death. But there may be some complications, depending on how wealthy you are.
If you were to die this year, the first $11,568,000 of everything you own upon your death shall pass free of federal estate tax.
If you are so lucky to be worth more than that, it wouldn’t usually be a problem, because there is a unlimited gift and estate tax marital deduction. Everything you leave to your wife will not be subject to any estate tax. The potentially bad news for you is that this applies only if the surviving spouse is a United States citizen.
Non-citizen spouses do not get to take advantage of the estate tax marital deduction, because the theory is that the non-citizen surviving spouse would take everything back to the old home land, which means the estate tax would never be paid.
The IRS doesn’t like it when tax isn’t paid, so the law penalizes non-citizen spouses. But keep in mind that this applies only for wealthy couples.
If this is a problem for you, there are two solutions.
First, your wife, who must be a permanent resident by now, could go through the naturalization process and become a United States citizen. If she’s not willing or able to do this, then you can take this into account in your estate plan. You can create a revocable trust, or amend an existing trust to include a specialized trust called a Q-DOT, or “Qualified Domestic Trust.”
With a Q-DOT, the portion of your assets that would otherwise be subject to federal estate tax would be held separately, in a trust that pays the estate tax in increments as distributions are made from it to your wife.
For those of you who created your trusts years ago when the amount that could pass free of estate tax was as low as $600,000, then you should review your trust and probably bring it up to date as many trusts with Q-DOT’s no longer need them.
Len and Rosie
Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at 707-996-4505.
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