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  >  Estate Planning   >  Considerations When Leaving an Estate to Non-U.S. Beneficiaries – Part 1

Considerations When Leaving an Estate to Non-U.S. Beneficiaries – Part 1

In some respects, naming a non-U.S. citizen as a beneficiary of your estate is no different than naming a U.S. citizen (with the exception of a spouse).  For example, while the amount that can be passed free of federal estate tax (there currently is no New Jersey estate tax) is currently $13.61 million, this applies only to the estates of U.S. citizens.  The amount that can be passed tax free by a non-U.S. citizen is $60,000. It is the citizenship of the decedent and not that the beneficiary that matters.

The spouse is the exception because there is no marital deduction available to the non-U.S. citizen spouse.  The marital deduction provides that spouses can pass unlimited amounts to each other – even if they exceed the exemption amount ($13.61 million in 2024).  This unlimited exemption is not, however, available for transfers by a U.S. citizen spouse to a non-U.S. citizen spouse.  Estate tax on transfers can only be avoided by setting up a specific type of a trust known as a qualified domestic trust (QDOT).  Additionally, lifetime transfers to a non-U.S. citizen spouse are limited to an annual exclusion of $185,000 (for 2024) before being subject to gift tax.

While New Jersey phased out its estate tax in 2019, it still has an inheritance tax.  This tax is determined first by the relationship of the heir to the decedent.  Spouses, children and grandchildren are Class A beneficiaries and not subject to inheritance tax regardless of whether or not they are U.S. citizens.  More distant family members and non family members are subject to inheritance tax.  The particular tax rate is dependent on what “class” they fall into.  Again, citizenship does not matter.

So, with the exception of a spouse, leaving assets to a non-U.S. citizen will not typically trigger any additional tax as compared to a U.S. citizen.  There are, however, other practical considerations and problems to consider when leaving assets to a non-U.S. citizen.

We’ll cover that next week.