United States: Transfer Tax Rules For The Non-Citizen Spouse

Transferring wealth to a spouse who isn't a U.S. citizen can create complex gift, estate and generation-skipping transfer tax challenges. Such transfer tax issues require careful planning, as well as a clear understanding of the differences in how citizens and non-citizens are taxed.

Unlike citizens and resident aliens, a non-resident alien must only pay transfer taxes on assets having a situs in the United States.  Since the gross estate of such individuals is limited to U.S. situs assets, the exemption against estate tax is restricted, and deductions from the gross estate must be allocated.

Also, be aware that for federal transfer tax purposes, the term "resident" is defined differently than for income taxes.

For purposes of federal transfer taxes, the term "resident" means an individual domiciled in the United States -- a meaning that is not identical to the meaning of the same term in the income tax context.  For income tax purposes, a taxpayer may have a dual residence, while a taxpayer can have only a single true domicile for transfer tax purposes.  Determination of domicile is based on subjective review of a number of factors.  The ultimate concern is whether the individual intends to remain in the United States for an indefinite period.            

Because most countries will assert tax jurisdiction over their own citizens and residents with respect to the entire estate worldwide, and will also assert jurisdiction over assets having a situs within their borders, there is a great potential for double taxation when dealing with international clients. 

For example, a resident alien having a domicile in the United States may also be subject to tax by the country of which he or she is a citizen, and may be subject to additional tax if real estate is owned in a third jurisdiction.  Such conflicts are generally dealt with under treaties entered into by the respective jurisdictions.  Two primary types of estate tax treaties exist: 

 If an estate is subject to taxation on worldwide assets by more than one country, then each country will allow a tax credit on property physically located in the other country. 

  1. If an individual is viewed as a domiciliary of two countries, he or she will be treated as a domiciliary of the country of citizenship if residence was established in the non-citizenship country less than a specific number of years prior to death.  If the double domicile dispute cannot be settled by the number of years rule, the treaties contain other means of determining domicile. 

The tax treaty provisions are complex, and vary for each country.  Transfer tax planning for non-citizens cannot be carried out until all applicable treaties have been examined.

Where assets are located outside the United States, it will be necessary to examine the testamentary formalities required to effectuate a transfer of the foreign situs property at death.  The country where assets are located will generally exercise ultimate control over those assets, although courts and legal authorities in other jurisdictions may attempt to assert jurisdiction.  Sometimes, a jurisdiction may exercise indirect control over assets located elsewhere if the forum country has control over the interested parties.  Even when it is determined which country has control over specific assets, it is not clear that that country's law will necessarily apply.  The choice of law rules applied by the forum nation must be consulted.  These rules are rarely clear.  Foreign counsel may need to be consulted in order to assure that the estate plan is properly carried out.

Multijurisdictional wills may help prevent such confusion. In addition, careful consideration should be given to the use of diverse types of vehicles to hold assets.  Use of corporate, trust and other entities may be helpful in collecting assets, avoiding probate in a multitude of jurisdictions, and pinning down questions of situs and choice of law.

Basic Rule:  Marital Deduction Disallowed. 

In 1988, Congress chose to disallow the marital deduction for transfers to non-citizen spouses, except under strictly controlled circumstances. 

One of those circumstances is when the property passes into, or is promptly transferred by the surviving spouse to, a Qualified Domestic Trust ("QDOT").  A narrow exception is available where the surviving spouse becomes a citizen before the filing of the estate tax return, and was a resident of the United States at all times between the decedent's death and the attainment of citizenship status. 

No marital deduction is allowed for lifetime transfers to a non-citizen spouse.  The qualified domestic trust exception is not available.  However, for gifts to a non-citizen spouse which would otherwise qualify for the marital deduction, a special annual exclusion limitation of $100,000 indexed for inflation ($149,000 in 2017), instead of the normal $14,000, is made available each calendar year, for gifts other than future interest gifts. 

Where property is titled jointly with right of survivorship or tenants by the entireties and one of the spouses is a non-citizen, the "consideration furnished" test must be applied to determine whether and to what extent jointly-owned property will be included in the estate of the first spouse to die if the surviving spouse is not a U.S. citizen.  The portion of the jointly-owned property includible in the estate will not be eligible for the marital deduction. 

Legislative Solution:  Qualified Domestic Trust. 

Transfers at death to a non-citizen spouse will qualify for the marital deduction to the extent that the assets pass from the decedent, or are promptly transferred by the surviving spouse, to a QDOT meeting the following requirements.

1) At least one trustee of the trust be an individual citizen of the United States or a domestic corporation.

2) No distribution (other than a distribution of income to the spouse) may be made unless the U.S. trustee has the right to withhold the QDOT tax from the distribution.

3) The trust instrument must also comply with regulatory requirements designed to ensure the collection of the QDOT tax. 

Please note: A QDOT will qualify as such only if the executor elects QDOT treatment on the estate tax return.

Distributions made to the spouse from a QDOT are generally treated as taxable events.  However, no QDOT tax is imposed upon the distribution of income.  For this purpose, capital gains may not be treated as income, unless they would be so treated under prevailing state law principles, regardless of the provisions of the trust instrument.  Principal distributions made to the spouse on account of "hardship" are also exempt from the QDOT tax.  The distribution will be exempt only if other resources are not available to satisfy the spouse's need.  

If the trust ceases to qualify as a QDOT at any time, as, for example, in the situation where there is no U.S. trustee, the entire value of the trust corpus will be subject to tax. 

Since the property passing into the QDOT is eligible for the marital deduction, in most cases the property will be subject to taxation at the surviving spouse's death as part of his or her own estate and will receive a stepped-up basis.  

Additional QDOT tax may be avoided if the surviving spouse becomes a citizen of the United States after the establishment of a QDOT. 

If the spouse was at all times a resident of the United States between the date of death and the date of attainment of citizenship, or if no taxable distributions have been made from the QDOT prior to the attainment of citizenship (regardless of the residency status of the spouse), then upon attaining citizenship, the QDOT tax will no longer be imposed.  If a QDOT tax has been imposed on prior distributions from the QDOT, and if the spouse was not at all times a resident of the United States, then the spouse must elect to treat the prior distributions as taxable gifts for purposes of determining the appropriate transfer tax rate and available unified credit for the spouse's future gifts and for the spouse's estate at death.  If the decedent spouse's exemption was allowed against the prior distributions, the surviving spouse must reduce his or her exemption by a like amount.  Future QDOT tax will be avoided if this election is made.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Day Pitney LLP
Holland & Knight
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Day Pitney LLP
Holland & Knight
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions