Estate Planning — Green Card Holders and U.S. Estate Tax: Noncitizen Spouse Considerations

Overview

Green card holders (U.S. lawful permanent residents) are generally treated like U.S. citizens for many estate-tax purposes, but a key exception affects transfers to a surviving spouse who is not a U.S. citizen. That exception can change whether a transfer to your spouse is eligible for the unlimited marital deduction, how estate tax is calculated, and whether you should use trusts or gifting strategies to protect assets for your family.

This entry explains the practical rules, common planning tools (including Qualified Domestic Trusts, lifetime gifting, and life insurance), typical missteps I see in practice, and the immediate steps you should take now. It also links to related FinHelp resources for cross-border and estate-tax details.

(For current federal thresholds and technical guidance, always check the IRS estate and gift tax pages: https://www.irs.gov/businesses/small-businesses-self-employed/estate-and-gift-taxes and the QDOT overview: https://www.irs.gov/.)

Why residency and citizenship matter for estate tax

U.S. federal estate tax applies to the worldwide assets of U.S. citizens and to the U.S.-situated assets of nonresident aliens. Lawful permanent residents (green card holders) are typically treated as U.S. residents for estate tax purposes, which means federal estate tax generally applies to their worldwide assets when they die (see IRS guidance).

However, the marital deduction — the rule that lets a person leave an unlimited amount to a surviving spouse without immediate estate tax — works differently when the surviving spouse is not a U.S. citizen. To prevent the outright, tax-free transfer of assets to a noncitizen spouse who might later leave the U.S., Congress restricted the marital deduction in those cases and created a special vehicle: the Qualified Domestic Trust (QDOT).

What is a Qualified Domestic Trust (QDOT)?

A QDOT is a trust that lets a surviving noncitizen spouse benefit from the deceased spouse’s estate while delaying or managing U.S. estate tax obligations. If the estate assets pass into a properly structured and administered QDOT, the marital deduction is allowed for transfers to that trust, which avoids immediate estate tax at the decedent’s death. Instead, tax is collected later when principal distributions are made from the QDOT or upon certain other triggering events.

Key features of a QDOT:

• The QDOT must meet IRS requirements (including having at least one U.S. trustee who is an individual citizen or a U.S. bank) and contain specific language required by the Treasury regulations.
• The surviving noncitizen spouse may receive income from the trust; principal distributions may be subject to estate tax at the time of distribution.
• The estate must make an affirmative election and follow reporting rules. See IRS guidance on QDOTs for technical requirements.

Because QDOT administration can be complex and carries compliance obligations, it’s commonly set up by attorneys experienced in cross-border estates.

Practical planning considerations and strategies

1. Inventory assets and their location

• Identify which assets are U.S.-situated (real estate, tangible personal property in the U.S., and certain financial accounts) and which are offshore. For green card holders, worldwide assets are typically relevant for estate tax; for nonresident aliens they are not. This distinction drives whether federal estate tax applies and which planning tools are necessary.

1. Confirm domicile, residency, and citizenship status

• Domicile can affect state-level estate or inheritance taxes and the availability of certain benefits. If you are a permanent resident but expect to return to another country permanently, discuss domicile facts with your advisor.

1. Consider a QDOT when the surviving spouse is a noncitizen

• If you want your noncitizen spouse to receive benefit and to delay estate tax, leave assets to a properly drafted QDOT rather than outright. A QDOT preserves the marital deduction at the decedent’s death but turns future principal distributions into taxable events, allowing tax collection over time.

1. Use trusts tailored to your goals

• Spousal Lifetime Access Trust (SLAT), outright bequests, or credit shelter (bypass) trusts have different roles. SLATs can let one spouse provide for the other while removing assets from the taxable estate. But SLATs must be structured carefully to avoid reciprocal trust rules and to account for immigration/citizenship changes.

1. Lifetime gifting to reduce estate size

• Annual and lifetime gifting can lower the value of your taxable estate. The federal gift tax and estate tax operate under a unified regime, and annual exclusions are indexed for inflation; check the current IRS limits before gifting. Gifts to reduce estate value can also transfer future appreciation out of the estate.

1. Consider life insurance for liquidity

• Life insurance owned in an appropriate vehicle can provide funds to pay estate taxes so your heirs don’t have to liquidate real property or businesses.

1. Evaluate portability and filing requirements

• Portability (the ability of a surviving spouse to use a deceased spouse’s unused exclusion amount) has technical rules and requires filing an estate tax return (Form 706) to elect portability. Whether portability helps when the surviving spouse is a noncitizen can be complicated; discuss this with a tax professional before relying on portability.

1. Coordinate retirement accounts and beneficiary designations

• Retirement accounts, especially IRAs and employer plans, have their own tax rules that interact with estate planning. Beneficiary designations override wills for these accounts; make sure designations are aligned with your estate plan and consider tax-efficient distribution strategies.

Common mistakes I see (and how to avoid them)

• Leaving assets outright to a noncitizen spouse without considering the marital-deduction limitation. This can cause surprise estate-tax liabilities for the estate or require emergency QDOT setup after death.
• Failing to coordinate beneficiary designations and trust language. Mismatched documents create probate and tax inefficiencies.
• Assuming state estate/inheritance taxes mirror federal rules. Many states have different thresholds and rules affecting domiciliary residents; check state rules where you live or own real property.
• Ignoring immigration/domicile changes. Changes in residency status or intentions to move can change tax exposure and optimal planning techniques.

Real-world example (anonymized)

A married couple I worked with — one spouse a lawful permanent resident and the other a foreign national — owned a U.S. home and retirement savings. Initially, they considered a simple will leaving everything to the surviving spouse. We recommended a QDOT for the portion of the estate that would otherwise be eligible for the marital deduction, plus a small life-insurance policy owned by an irrevocable trust to provide liquidity for eventual estate taxes. That combination preserved ongoing support for the surviving spouse while smoothing the family’s tax exposure.

Steps to take now (practical checklist)

1. Update or create a digital inventory of assets (accounts, real estate, business interests, and digital assets). See our guide on digital estate planning: Digital Estate Planning: Managing Online Accounts and Assets.
2. Review beneficiary designations on retirement accounts and life insurance.
3. Meet with an estate attorney experienced in cross-border issues and a tax advisor who understands noncitizen-spouse rules. Consider our related resources: Cross-Border Estate Planning Considerations and Estate and Gift Tax Basics: When Federal Rules Apply.
4. Consider whether a QDOT, grantor trust, or other trust structure fits your goals.
5. If you plan lifetime gifts, document their nature and consider filing gift-tax returns when required.

Frequently asked technical points

• Do transfers to a non-U.S. spouse always trigger estate tax? No — transfers to a noncitizen spouse are eligible for the QDOT route which preserves the marital deduction, but outright transfers may not receive the unlimited marital deduction and can create tax exposure.
• Will portability protect a noncitizen spouse? Portability can be complex when the surviving spouse is not a U.S. citizen; consult your attorney. The estate of the deceased spouse must file the required return and make the portability election in accordance with IRS rules.
• Are state estate taxes a concern? Yes. Several states impose estate or inheritance taxes with lower thresholds than the federal system. Review state rules where you live or own property.

Documentation and filing considerations

• Estate tax returns (Form 706) are typically required for estates that meet the federal filing threshold. Filing Form 706 may be necessary to elect portability or to claim deductions.
• A QDOT requires specific trust language and ongoing compliance, including recordkeeping and potentially additional reporting to the IRS.

Resources and authoritative references

• IRS — Estate and Gift Taxes: https://www.irs.gov/businesses/small-businesses-self-employed/estate-and-gift-taxes
• IRS — Qualified Domestic Trust (QDOT) rules (search the IRS site for “QDOT”).
• Consumer Financial Protection Bureau — resources on planning and executor duties: https://www.consumerfinance.gov/

Bottom line

Green card holders should treat estate planning as a multilingual, multi-jurisdictional exercise. While resident aliens generally face U.S. estate tax on worldwide assets like citizens, transfers to noncitizen spouses trigger special rules — most importantly the need to consider Qualified Domestic Trusts (QDOTs) or alternative trust structures. Early coordination among your estate attorney, tax advisor, and financial planner can preserve wealth, provide for surviving family members, and avoid last-minute compliance headaches.

Professional disclaimer: This article is educational and does not substitute for legal, tax, or immigration advice. For personalized planning, consult a qualified estate attorney and tax advisor familiar with cross-border and noncitizen-spouse issues.