Foreign Nationals and Estate Planning
For foreign nationals, the bad news is, they may not receive the Unified Credit or Unlimited Marital Deduction that United States citizens do.
Making matters worse is the convoluted set of rules that determine who is and who is not subject to tax as a foreign national, and which assets are included and the filing requirements associated with it.
Resident Aliens vs. Nonresident Aliens
Essentially, there are two groups of foreign nationals: Resident Aliens and Nonresident Aliens. Each present their own unique challenges, along with a couple of hidden pitfalls.
Resident aliens are subject to U.S. estate tax and do not have the unlimited marital deduction available to them without some trust planning work or a surviving spouse who happens to be a United States citizen.
The hidden pitfall for this group is that a resident alien's worldwide assets may be subject to estate taxation in the U.S., not simply their U.S. assets.
Nonresident aliens are subject to estate tax to the extent they own U.S. assets. The only tool the nonresident aliens have to offset their exposure is a paltry $13K lifetime estate tax exemption.
Nonresident aliens can also qualify for the unlimited marital deduction with some trust planning.
The "gotcha" here may actually work in this group's favor: Life insurance death benefits from a U.S. life insurance company are excluded from their taxable estate even if personally owned.
Keep reading our estate tax loophole for foreigners here.