When a married couple came for a basic consultation with Sean Wilson, a senior director in the product and portfolio solutions and distribution area of TIAA Wealth Management in New York, their situation may have seemed simple enough at first. They'd been married 18 years, had two children, and had just moved to the city. The husband was a physician, the wife worked in publishing.

"We discussed their needs, wants and wishes as well as challenges and opportunities," recalled Wilson.

Some of the challenges they were aware of, but others they were not. For example, they didn't know about tax laws that could impact them because the wife is a French citizen while the husband is a U.S. citizen.

"Estate planning for clients where one is a non-U.S. citizen can be a bit nuanced," said Wilson, "so it is important to work with a financial advisor experienced in this type of planning and an experienced legal team."

Gifts Aren't Estate-Tax-Free

A key concern is that noncitizen spouses cannot necessarily receive gifted marital assets tax-free or inherit them estate-tax free, as do spouses who are citizens. "The unlimited marital deductions allow U.S. citizen spouses to gift during life or leave at death an unlimited amount of assets to each other free from federal gift and estate taxes," Wilson explained. "Non-U.S. citizen spouses are not entitled to these unlimited marital deductions."

For those married to noncitizens, the maximum amount they can gift to their spouse tax-free every year is limited; in 2019 the cutoff is $155,000. Any gifts in excess of that require filing a gift tax return.

Moreover, upon the citizen spouse's death, there may be estate taxes to pay. In this case, if the husband—who is 10 years older than the wife—died first, any inheritance he left her that's over the federal exemption limit (currently $11.4 million) would be subject to immediate estate taxation because of the wife's international citizenship.

"This could be further complicated by the fact that some states have their own estate tax and inheritance tax laws," said Wilson.

But, he added, there are "various techniques that can be implemented to address these challenges."

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