U.S. TRANSFER TAX SYSTEM AND THE NON-U.S.-CITIZEN SPOUSE
By Cynthia D. Brittain, Esq.*
I. MARITAL ASSETS AND THE U.S. TRANSFER TAX
The Internal Revenue Code1 limits the amount of property that may pass free of transfer tax by gift or inheritance from a U.S. spouse to a non-U.S.-citizen spouse.2 For example, if the donee spouse is not a U.S. citizen, the unlimited gift tax marital deduction is not available for lifetime transfers made to that spouse. In addition, the unlimited estate tax marital deduction otherwise allowed by section 2056(a) for property passing to or for the benefit of the decedent’s surviving non-U.S.-citizen spouse is disallowed under section 2056(d), unless the surviving spouse becomes a U.S. citizen or an appropriate election is made with respect to such property passing into a trust that meets the requirements of a qualified domestic trust ("QDOT"). Fortunately, there are planning strategies available to transfer significant value to the non-U.S.-citizen spouse.
A. Gifts to a Non-U.S.-Citizen Spouse