Helping Noncitizens in Virginia and Washington D.C. Navigate Estate Planning
Building a robust estate planning requires understanding the complex laws governing the intricacies of wills, trusts, transferrable assets, probate, and tax implications. Many will need the assistance of qualified legal professionals to build a plan that honors their wishes and protects their loved ones. However, estate planning rules for noncitizens or nonresident aliens can differ dramatically from those that apply to citizens of the United States.
As an immigrant to the country, you will already face many significant challenges. To protect your future and avoid unintended consequences, you will need to take special care to understand how U.S. estate planning laws will impact you and your loved ones as noncitizens. Many noncitizens who seek to build an estate plan will require tailored legal attention and face challenges specific to their status throughout the process.
Our Alexandria immigration and estate planning lawyers at Tesfaye Law are prepared to help you navigate the intricacies of estate planning as a noncitizen. We practice in both immigration and estate planning and have a unique understanding of how these two areas intersect. Our team can work to understand your goals and identify innovative legal solutions that will pass legal muster and protect your and your loved ones’ interests.
Understanding Who Is Considered a Nonresident Alien or Noncitizen Resident
It is important to understand that most federal, state, and local laws governing estate plans are designed to apply to U.S. citizens. Noncitizens and nonresident aliens will have to overcome additional obstacles and ensure compliance for their estate plan to work as intended. Unfortunately, some immigrants are not necessarily aware of the laws or how they might inadvertently become impacted.
To understand any potential vulnerabilities, you will need to first determine your status. One can be considered a United States citizen in one of several ways; some are automatic, some are not.
U.S. citizens are defined as anyone who:
- Was born in the United States, Puerto Rico, Guam, or the U.S. Virgin Islands
- Was born to parents who are United States citizens
- Immigrated to the United States and underwent the naturalization process
If none of the above conditions apply to you, you are more likely considered a noncitizen or nonresident alien. Determining whether you are a noncitizen resident or a nonresident alien is instrumental when preparing your estate plan, as the designation impacts your tax liability.
To be considered a noncitizen resident, you must have a “domicile” – or a residence – where you intended to make your permanent home. A registered domicile tends to be required for those pursuing or possessing a green card. The domicile must have been intended to be your primary residence at the time of your death, though you do not necessarily need to have lived there for a long time.
Should your residency come into dispute, the Internal Revenue Service (IRS) will consider the totality of your presence in the U.S., your family in the country, your visa status, and your community involvement in making a formal determination. Being considered a noncitizen resident in the eyes of the IRS is important, because the classification entitles you to significantly larger tax exemptions, including those impacting estate plans.
If you are a noncitizen and do not have a domicile, you are likely considered a nonresident alien. You will still be able to benefit from some tax exemptions, but they will not be as generous as those for citizens or noncitizen residents.
How Estate Taxes Differ for Noncitizen Residents and Nonresident Aliens
When someone passes away, the value of their estate is appraised. Should it be of a sufficiently high value, assets become the exemption threshold become subject to a federal estate tax. Several states also have their own estate taxes, which are sometimes referred to as inheritance taxes. Virginia repealed its estate tax in 2007, meaning only federal tax rules apply.
United States citizens, noncitizen residents, and nonresident aliens are all subject to federal estate taxes when they pass away. The good news is noncitizen residents enjoy the same, significant tax exemption as citizens: Up to $11.58 million of value in assets is protected from federal estate taxes, meaning many noncitizen residents with smaller estates will not be impacted at all.
Nonresident aliens are unfortunately subject to a much smaller exemption. Only $60,000 of their property is protected from federal estate tax rules, meaning even smaller estate taxes are likely to owe a large amount to the U.S. government.
For noncitizen residents and nonresident aliens, only assets based in the United States are subject to federal estate tax rules. This means that any property physically located abroad, such as foreign real estate, is typically considered exempt and does not accrue toward the exemption ceiling.
Property of U.S. noncitizen residents and nonresident aliens that is generally subject to federal estate taxes include:
- All property located in the United States, including real estate and personal possessions
- Proceeds from any United States-based insurance policies
- Annuities from any United States-based retirement policies
- Value of United States stocks
- Contents of United States bank accounts
Noncitizen residents and nonresident aliens can in many situations maximize the value of the federal estate tax exemption by conducting tax-free transfers to their spouse. It can often be challenging to decipher whether an asset is U.S.-based or non-U.S. based, and therefore whether it is subject to the federal estate tax. Our Alexandria immigration and estate planning attorneys can assess ambiguous situations and help determine an asset’s tax liability.
How Gift Taxes Differ for Noncitizen Residents and Nonresident Aliens
Believe it or not, noncitizen residents and nonresident aliens enjoy one potential estate planning advantage in their exceptions to certain gift tax retirements. Unlike U.S., noncitizens can freely transfer intangible assets without being subject to gift taxes. Intangible assets include any property that does not have tangible form, including the value of stocks, proceeds from life insurance policies, or annuities from retirement policies. Note that U.S. gift taxes do not apply to the transfer of assets not situated in the country.
Gifts that do have tangible form, like objects or property, are still subject to gift taxes. Keep in mind that you are generally able to transfer gifts of either category to your spouse without needing to pay a gift tax. Noncitizens also enjoy an annual gift tax exemption.
The Advantage of the Qualified Domestic Trust
Qualified Domestic Trusts, or QDots, are a financial instrument created by Congress that authorizes United States citizens to leave assets to noncitizen spouses while avoiding estate taxes. This type of trust can represent a massive advantage to married couples in which one partner is a noncitizen, as the U.S. citizen can designate assets with value far beyond what estate planning exemptions would typically allow. When combined with terminable interest property trusts and irrevocable trusts, noncitizen residents and nonresident aliens can quickly overcome immigration-specific obstacles and develop strong estate plans.
We Can Help You Navigate the Intersection of Estate Planning and Immigration
Managing an estate plan can be difficult even without the additional challenges presented by being a nonresident alien or noncitizen status. Our Alexandra immigration and estate planning lawyers can help answer your questions and work with you to build a plan that will ably protect you and your loved ones.