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Estate planning requirements differ based on U.S. citizenship

Nevada, as well as the rest of the United States, is becoming more and more of a global economy. In addition to the abundance of American companies, there are a number of foreign-owned corporations that often import executives to work in the United States. At times, these individuals who are not U.S. citizens fall in love and marry a U.S. citizen. While the marriage is certainly valid, its tax sheltering benefits upon the death of the U.S. citizen is not the same. In the event that the couple has a sizable estate, estate planning is crucial if the goal is to avoid federal taxes on the estate.

Currently, $5.34 million is exempt from the federal estate tax. Beyond this amount, money left to an individual who is not a U.S. citizen is subject to taxation at the estate tax rate of 40%. There are several ways that this can be avoided.

One way to rectify this situation is for the individual to become a U.S. citizen. However, this may not be the best choice, depending upon the individual's desires. Another way to shelter the funds would be to transfer portions of the money while the U.S. citizen is still alive. Currently, $145,000 per year can be transferred to the spouse in this manner without being subject to a gift tax.

Another option would be to establish a qualified domestic trust. This trust can be established during the estate planning process. In this case, excess funds are only taxed when they are removed from the trust. This also gives the individual more time to become a U.S. citizen if this is the chosen route. Nevada residents who believe their estate will be subject to federal taxes upon their death will want to consider all their options in the estate planning process.

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

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