Tax and Estate Issues for International Marriages

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August 15, 2014

In today’s interconnected, globalized world, individuals can more easily live, work and vacation abroad — providing increased opportunities to meet and marry citizens from other nations.  


International marriages may require couples to be more thoughtful about financial planning, particularly around taxes and estate planning, says Heidi Steiger, East Region President of The Private Client Reserve. Otherwise, couples may risk accelerating the payment of taxes that they may have assumed would be deferred.


The first item to consider is whether the non-U.S.citizen spouse will become a U.S. citizen. From atax and estate-planning standpoint, this may be the preferred choice. “If your spouse becomes a citizen, you can make unlimited gifts to him or her without paying taxes. And at your death, you can give them all of your assets without incurring immediate taxes,” says Joel Yudenfreund, Wealth Management Strategist for The Private Client Reserve.

If your spouse opts not to become a citizen, take extra steps to protect him or her and your assets. While U.S. Bank and its representatives don’t provide tax or legal advice, your tax and/or legal advisor can offer advice and information concerning your particular situation.

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August 15, 2014

Gift Tax Issues With International Marriages

If your spouse is a U.S. citizen, you can gift any amount of money to him or her without paying taxes on that amount. But if your spouse is not a U.S. citizen — even if he or she is an official U.S. resident — you can only gift up to $145,000 in 2014 tax-free (this amount is adjusted annually for inflation). After that, you must pay taxes on all gift amounts.


It’s important to understand what’s viewed as a gift.If you open a joint account with your non-U.S. citizen spouse or put property in his or her name, and you provide all or some of the assets, it could trigger a gift tax. “If you buy property in joint name, there can be other unexpected consequences,” Yudenfreund says.

Even if your spouse contributes a portion of the assets — say $100,000 of the $1 million — if it’s not equal, the difference ($400,000) could be viewed as a gift.


International Marriage Issues Around Estate Planning and Trusts

When they die, married U.S. citizens can leave an unlimited amount to spouses tax-free, either outright or through a trust. But if the living spouse is not a citizen, he or she could be forced to pay estate tax on some of that inheritance if the proper vehicles are not created.


The 2014 estate tax law allows you to leave assets worth up to $5.34 million to anyone, including a non-U.S. citizen spouse, tax-free. Your non-U.S. citizen spouse would have to pay roughly 40 percent in estate taxes on anything over that amount.

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August 15, 2014

As an alternative, you may be able to put those “leftover” assets into a qualified domestic trust (QDOT). By making your spouse a beneficiary of that QDOT, he or she can receive the income that the trust property generates free from estate tax. However, the income will be subject to income taxes.


If your spouse receives any of the principal assets from the trust, he or she must pay estate tax unless he or she can demonstrate an urgent and immediate need. “As long as they don’t touch the principal, the estate tax may be avoided until they die,” Yudenfreund says.


Ideally, you want to work with your attorney to

establish a QDOT in your estate planning documents, though your living spouse has until the estate tax return deadline to establish the trust and transfer the property into it. It’s not difficult to set up a QDOT, but you have to take the extra step. “The sooner you talk to your attorney about these issues, the better,” Steiger says.  “Ideally, these conversations happen before the wedding takes place.”


Finally, don’t assume your financial advisor or tax attorney knows that your spouse is a non-U.S. citizen. If they don’t know the status of your spouse, they may not provide all the information you need to potentially protect your assets. That could result in paying taxes that otherwise might have been avoided. “If they don’t ask, tell them,” Yudenfreund says. 


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