Livens & Reed, PLLC

How non-citizen Texas spouses can avoid estate tax

Estate planning is common for most citizens in this country. However, uncommon situations that may come up in estate planning are issues involving non-citizen Texas spouses. Tax breaks that would normally apply to citizens may not apply to those who are not citizens.

One of the most standard federal estate taxes requires the IRS to take 40 percent of excess estate if it's over $5.34 million. To reduce or eliminate estate tax, it's generally recommended that grantors donate a portion of their assets to family members -- such as children or surviving spouses -- upon one's passing. Also, as long as spouses are United States citizens, grantors may donate or gift an unlimited amount of assets without incurring taxes. An example of this is if someone is married to a citizen who has assets worth over the non-taxable amount, the person can donate the non-taxable amount to their children and the rest to their spouses to avoid taxes.

Such a transfer is also called an unlimited marital deduction and is at the forefront of gift tax planning techniques. However, there are issues that may come up if the spouse is not a United States citizen. If this is the case, then there is no entitlement to the unlimited marital deduction. If a spouse gives away $1.66 million to the surviving non-citizen spouse, then the estate is subjected to a 40 percent tax, which is a relatively large amount. Some of these taxes may be avoidable by donating a large amount in increments before death.

Texas non-citizens may be subjected to a 40 percent estate tax if their estate exceeds the $5.34 million limit. However, using techniques such as donating in increments or setting up a qualified domestic trust could help offset these taxes. Thorough and advanced planning can help reduce or eliminate estate taxes and give surviving spouses and children a better peace of mind.

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

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