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Estate planning regarding foreign nationals

On Behalf of | Feb 21, 2014 | Estate Planning |

The vast majority of estate planning advice is tailored to a family in which all members are American citizens. When an individual is married to a foreign national, things typically become a bit more complicated. The same applies to a New Jersey couple in which both spouses are citizens of another nation, but reside within the United States. These circumstances require a tailored estate planning approach that must take into consideration a number of important factors.

Take for example the unlimited marital deduction. These rules allow spouses to transfer wealth back and forth between one another without federal gift tax consequences. However, the rules only allow for such transfers between American citizens.

In the event of one’s death, up to $5.34 million could be left to an heir without a tax consequence using the federal estate tax exemption. Without the proper planning, however, anything over that amount is without a tax shelter, and would incur a 40 percent estate tax. This could lead to significant losses.

One way to avoid this result is for the non-citizen to attain citizenship status. However, this can be a difficult process, and must be completed within nine months of the death of a spouse. A more commonly used estate planning approach encourages New Jersey residents to transfer wealth to the non-citizen spouse over a period of time. As of the time of this report, it is permissible to “gift” a non-citizen spouse up to $145,000 per year. This allows a family to reduce their taxable estate and find shelter under the $5.34 million federal exemption.

Source: MarketWatch, Estate planning with a non-citizen spouse, Bill Bischoff, Feb. 19, 2014