What are the tax implications for a non-US citizen receiving an inheritance?
I am a non-US citizen, but a permanent resident. What are the inheritance tax ramifications I would incur if my spouse who was a US citizen passed?
There are a couple of different estate tax ramifications associated with a surviving non-U.S. citizen spouse.
1. According to the IRS, "the Unlimited Marital Deduction is generally not available for property passing to a surviving spouse who is not a United States citizen." In other words, all the gifts you received from your spouse, which are over annual gift exclusion amount to a non-U.S. citizen ($149,000 for 2017) every year, plus his/her estate will be subject to the total applicable exclusion amount ($5,490,000 for 2017).
2. The Deceased Spousal Unused Exclusion election is also generally not available to a surviving spouse who is not a U.S. citizen. In other words, if the estate is below the total applicable exclusion amount ($5,490,000 for 2017), any remaining exclusion amount is not portable to you.
3. In general, if the decedent owned property with a surviving spouse who is not a U.S. citizen, the total value of that property will be included in the estate unless you can prove the extent, origin, and nature of your interest in the property.
Two ways may help you avoid the ramifications mentioned above.
1. Become a U.S. citizen before the estate tax return due (usually 9 months after death plus 6-month extension).
2. Use the Qualified Domestic Trust (QDOT) if you already have one.
I highly recommend you to consult a qualified estate attorney based on your specific situation.
This is a complicated question and you probably need professional guidance. A non-U.S. citizen spouse would get the "exempt amount" of $5.49 million (2017) estate tax free, but you wouldn't get the Unlimited Marital Deduction on anything over and above that amount. And the estate tax rates are high after the exempt amount.
There are special trusts you can have written by a qualified estate attorney if you have significant assets and exceed the exempt amount. Either way, you should probably get some professional help so you do everything correctly.
Hope this helps and best of luck, Dan Stewart CFA®
In general, the tax implications are the same for US citizens and permanent residents. There might be some variations if you permanently live in another country. I would suggest consulting with an attorney or financial planner to review your situation in more details.
Here's a short answer to your question, from NOLO:
“One threshold question you may have is simply whether you can leave property to someone who isn’t a U.S. citizen. The answer is yes; noncitizens can inherit property just as citizens can. So when you make your will or living trust, or name beneficiaries for your retirement accounts or life insurance policies, there is no problem with naming your noncitizen spouse.”
Of course, you know what I'm going to say next; make sure you hire an estate planning attorney to guide you in this process. Especially when you're talking about significant assets and potentially high tax liability if mistakes are made, you need professional counsel.
One additional point; don't forget that life insurance is integral to estate and family financial planning. Non-citizens that are permanent residents can be eligible for good pricing. Prequalification will determine what is available for you.
The U.S. has an estate tax (slightly different from an inheritance tax), which applies only to estate assets in excess of $5.49 million (2017). In addition to this exemption, a U.S. resident can leave a U.S. citizen spouse an unlimited amount free of estate tax. This unlimited amount does not apply to spouses who are not U.S. citizens. If the deceased spouse's estate is less than the $5.49 million exemption, then no estate taxes will be imposed on assets left to a non-U.S. citizen spouse. If this exceeds $5.49 million, a 40% tax rate will be imposed on the excess.
Because other tax and inheritance issues can arise in the context of estate planning for non-U.S. citizens, I recommend that you consult an estate planning attorney who has experience with international planning.