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Resident alien estate planning

Because of our region’s heritage and evolution, we in Fullerton have perhaps a fuller understanding of the immigration issues than other areas of the nation. It’s not unusual for a resident of the Fullerton area to marry a non-citizen, or for two non-citizens to marry and settle here.

For non-citizens residing permanently in the U.S. -- termed resident aliens -- estate-planning advice can vary from the advice given to married citizen couples. 

MarketWatch recently broke down some of the differences in estate planning for resident aliens and citizens.

The publication noted that both resident aliens and citizens must deal with essentially the same estate tax laws. Regardless of which group a person belongs to, if the person dies this year and has a taxable estate worth at least $5.34 million, the Internal Revenue Service will want 40 percent of the assets above that amount.

Much of that 40 percent can be avoided with careful planning, however. A popular legal tool: bequeathing assets directly to children and the surviving spouse, or indirectly via a trust.

The publication illustrates an interesting tax difference for resident alien spouses and citizen spouses. Let’s say a person (either citizen or resident alien) has a $7 million estate. That person can avoid the federal tax by bequeathing $5.34 million to their kids and giving the rest ($1.66 million) to their U.S. citizen spouse (citizen spouses can receive unlimited tax-free gifts).

This unlimited marital deduction does not apply to non-citizen spouses, however. Using the above example, if the $1.66 million were given to a non-citizen spouse, it would be taxed at 40 percent. The tax bill would be a painfully large $664,000.   

One way around the tax bill: have your spouse become an American citizen. If that isn’t an appealing change for whatever reason, a person can make substantial tax-free annual gifts to a non-citizen spouse. The gift exemption this year is $145,000.

Another solution presented by MarketWatch is establishment of a qualified domestic trust.

The writer concluded that it might well make sense for a layperson to get the advice and help of an experienced estate planning attorney “to get the job done right.”    

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

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