Why Citizenship Status Matters in Estate Planning

One of the most significant reasons why citizenship status matters in estate planning is the tax treatment of estates, particularly when it comes to federal estate and gift taxes. U.S. citizens and permanent residents (green card holders) benefit from the unlimited marital deduction, which allows them to transfer assets to a U.S. citizen spouse without incurring estate taxes. However, non-citizen spouses do not automatically qualify for this benefit, meaning that transfers above the federal exemption amount can be subject to substantial taxation. To address this issue, many estate plans for non-citizen spouses incorporate a qualified domestic trust (QDOT), which allows the estate to defer taxes until the surviving spouse receives distributions from the trust. Without this planning tool, a surviving non-citizen spouse could face unexpected financial burdens due to immediate estate tax liabilities.