03 Nov Non-U.S. Citizen Spouses – How It Affects Your Planning

Picture this: you’ve built significant wealth and created the kind of life most people only dream about. Your spouse has been with you every step of the way . . . your partner in every sense of the word.

But what if something happens to you?  Let’s say you pass away unexpectedly.  Your spouse, who is not a U.S. citizen, is grieving and overwhelmed. 

And then comes the letter from the IRS:  Your estate owes millions in taxes.  Immediately.

Welcome to one of the most painful (and preventable) estate planning challenges affluent families with international ties face.

Non-U.S. Citizen?  Here’s What You Need to Know

You may be familiar with some of the basics of estate planning:  wills, powers of attorney, advance directive, maybe even trusts.  But if you or your spouse is not a U.S. citizen, your situation has added complexity and exposure.

The unlimited marital deduction is an estate tax rule that lets you leave any amount of money or property to your spouse, either while you’re alive or when you die, without paying any federal estate or gift tax at that time.  In other words, you can transfer your entire estate to your spouse tax-free, and the IRS waits until the second spouse dies before collecting any estate tax (assuming your estate is above the federal estate and gift tax threshold of $15 million per individual or $30 million per married couple in 2026).

But, the unlimited marital deduction only applies between U.S. citizen spouses.  If you’re a U.S. resident (even with green card status), you don’t get it unless you’re a citizen.   In that case, if the gift or transfer to the non-U.S. citizen exceeds certain thresholds, you could incur taxes of 40% (or more depending on if your state also imposes its own tax on such transfers).

The financial legacy you built could be cut almost in half overnight. Not because you didn’t have a will. Not because you didn’t love your family. But because no one ever told you the rules change when your spouse is not a U.S. citizen.

The Solution (and Its Limitations)

The government provides some relief here: the Qualified Domestic Trust, or QDOT. This trust allows you to delay estate tax until your non-citizen spouse passes away.

Sounds good, right? But this type of trust comes with multiple requirements. For example:

• At least one trustee must be a U.S. citizen or corporation (often a bank or trust company).
• If the trust holds over $2 million, it must post a bond or have a U.S. bank trustee.
• Distributions of principal to your spouse trigger immediate estate tax, unless it’s for a tightly defined “hardship.”

And here’s an additional hurdle: many foreign countries don’t recognize U.S. trusts or tax them harshly. Meaning that even if you structure it perfectly here, you might still trigger foreign taxes abroad.

Translation: your “simple trust” may turn into a complex international tax minefield.

Why Gifting Can Get You in Trouble

Many couples think they can simply gift assets to even things out. Not so fast. 

U.S.-citizen spouses can gift each other unlimited amounts.

But the IRS limits tax-free gifts to a non-citizen spouse to just $190,000 per year (for 2025). Anything above that eats into your lifetime exemption.  And if you have no lifetime exemption left?  You could be looking at gift tax of 40% on your gift.

If you’ve titled assets jointly, say, a vacation home or investment property, you have additional considerations. When both spouses are citizens, the IRS assumes you each own 50%. But when one spouse isn’t a citizen? That presumption disappears. If the U.S. citizen dies first, 100% of that home’s value may be pulled into that spouse’s taxable estate unless the non-citizen spouse can prove they paid their share.

In other words, even how you title a house can mean the difference between your family keeping or substantial wealth.

The International Twist

If you own property abroad (e.g. a villa in Italy, a condo in Spain, or investment real estate in the Caribbean) your U.S. will and trust may not control what happens to it.

Many countries have “forced heirship” laws that dictate who inherits, regardless of what your documents say. Others don’t recognize trusts at all, or tax them at punishing rates. You may need a separate local will to govern those assets.

Fail to coordinate your U.S. plan with your international holdings, and you could be saddled with a tax bill larger than the value of the property itself.

The Cost of Waiting

For unprepared couples, these realities hit at the worst possible time: right after one of you has passed away.  But the IRS doesn’t care that you (or your spouse) is grieving. They don’t care that your children are in college, or that your business is mid-transition. If you pass without the right planning, they collect.

The good news? With the right strategy, you can protect your spouse, preserve your wealth, and ensure your legacy passes as you intend.  Without unnecessary taxes or chaos.

This might include establishing a QDOT tailored to your family’s assets and jurisdictions, coordinating cross-border wills and trusts that comply with both U.S. and foreign laws, and evaluating tax treaties that might reduce or eliminate double taxation.

Protect What You’ve Built—The Right Way

At Garza Business & Estate Law, we specialize in protecting families exactly like yours: affluent, global, and deeply invested in preserving what you’ve built for the next generation.

We don’t work with everyone. We’re selective by design. We work with a limited number of families each year to ensure each one receives the depth of strategy and personal attention their situation demands.Apply today to explore how we can safeguard your legacy:
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