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When one spouse is not a U.S. citizen, estate planning becomes more complex. U.S. tax law limits the amount that can be transferred to a non-citizen spouse without triggering estate or gift taxes. Understanding these limits and planning accordingly can help preserve more of your estate for your loved ones.
The Marital Deduction and Why It Doesn’t Automatically Apply
Ordinarily, U.S. citizens can transfer an unlimited amount of property to their spouse without paying estate or gift taxes. This is called the unlimited marital deduction. However, this deduction does not apply when the surviving spouse is not a U.S. citizen, even if they are a lawful permanent resident.
The government’s reasoning is simple: without citizenship, assets inherited outright by a non-citizen spouse could leave the U.S., placing them outside the IRS’s reach for future taxation. To close that gap, Congress restricts how much can pass to a non-citizen spouse tax-free.
Annual Gift Limits for Non-Citizen Spouses
If you’re married to a non-U.S. citizen, you can still make tax-free gifts up to a certain amount each year. For 2025, the IRS allows $190,000 in annual gifts to a non-citizen spouse without incurring gift tax. This limit increases periodically with inflation.
Gifts above that amount may require filing a gift tax return and could count toward your lifetime gift and estate tax exemption, which in 2025 is $13.99 million per person under federal law. New York currently has its own estate tax exemption of $7.16 million, but no separate gift tax.
The Federal Estate Tax Threshold
When a U.S. citizen passes away and leaves assets to a spouse who is not a U.S. citizen, the unlimited marital deduction does not apply. In that case, only the portion of the estate sheltered by the federal estate tax exemption ($13.99 million in 2025) can pass free of estate tax. Any amount above that exemption is generally subject to the 40% federal estate tax, unless other planning tools are used to defer or reduce the tax.
For high-net-worth families, that difference can be significant. Even a modest portfolio or family home can push an estate above the exemption limit.
The Role of a Qualified Domestic Trust (QDOT)
To help protect non-citizen spouses, federal law allows the use of a Qualified Domestic Trust (QDOT). A QDOT acts as a holding structure that defers estate taxes until funds are distributed to the non-citizen spouse. Here’s how it works:
- The trust must be established under specific IRS rules.
- At least one trustee must be a U.S. citizen or a U.S. bank.
- The trust ensures the IRS can collect taxes on distributions or at the spouse’s death.
With a properly designed QDOT, the estate can claim the marital deduction, allowing the deceased spouse’s assets to pass into the trust tax-free. Taxes are only due when funds are later withdrawn for the non-citizen spouse’s benefit (other than for hardship or qualifying income distributions).
This arrangement can provide financial stability for the surviving spouse while keeping the estate compliant with U.S. tax law.
State Estate Tax Considerations in New York
New York’s estate tax rules are separate from federal law and do not offer a marital deduction for non-citizen spouses either. If the deceased spouse was a New York resident, the state estate tax could apply once the estate exceeds the state’s exemption level, currently $7.16 million for deaths in 2025. Proper trust planning can help ensure both federal and state tax obligations are minimized.
Strategies to Minimize Tax Burdens
Careful estate tax planning can significantly reduce the tax impact on your non-citizen spouse. Possible strategies include:
- Establishing a QDOT to preserve the marital deduction and defer taxes.
- Making annual tax-free gifts within the allowable limits.
- Considering citizenship or permanent residency for the non-citizen spouse which can change how the marital deduction applies.
- Equalizing assets between spouses to make full use of both federal and state exemptions.
- Using life insurance or charitable bequests to offset estate tax exposure.
Every family’s situation is unique, and small changes in timing, asset type, or residency status can have significant tax consequences.
Building a Thoughtful Plan for Your Family’s Future
Estate planning for international families requires foresight and precision. At Sverdlov Law, we help New York residents with non-citizen spouses structure plans that preserve assets, reduce taxes, and provide for their loved ones. We’ll guide you through the right strategies, from QDOTs to annual gifting, to ensure your wishes are honored and your family is protected.
If your spouse is not a U.S. citizen, proper estate planning can make all the difference. Contact Sverdlov Law PLLC today to schedule a consultation and learn how we can help you build a plan that minimizes taxes and maximizes peace of mind.