A Spouse Who Is Not a U.S. Citizen
One spouse is a U.S. citizen, the other is not, or neither is, and the couple lives in the United States or holds U.S. assets. Transfers between spouses that would otherwise be free of estate and gift tax are limited when the recipient is not a citizen. The firm’s attorneys plan around the limits: the qualified domestic trust, lifetime gifts, the holding of joint property and, where it applies, the treaty.
Law stated as of October 2026
In brief.
- No estate tax marital deduction for property passing to a surviving spouse who is not a U.S. citizen, wherever the spouse lives (section 2056(d)(1)); the exclusion of USD 15,000,000 in 2026 still applies to the first estate.
- The deduction is restored for property that passes to a qualified domestic trust with at least one U.S. trustee, which withholds the deferred estate tax on principal distributions and at the survivor’s death (sections 2056(d)(2) and 2056A).
- The deduction is also restored where the surviving spouse becomes a U.S. citizen before the estate tax return is filed and has been a U.S. resident since the death (section 2056(d)(4)).
- Lifetime gifts to a spouse who is not a citizen are excluded up to USD 194,000 a year in 2026, instead of the unlimited gift tax marital deduction (section 2523(i)).
- Joint property with such a spouse is included in the first estate in full, except to the extent the survivor can show his or her own contribution (section 2040(a)); the half-and-half rule for spouses does not apply.
What is happening
Between spouses who are both U.S. citizens, property passes at death and during life without estate or gift tax. Where the recipient spouse is not a citizen, the estate tax marital deduction is denied (section 2056(d)(1)), so that everything above the exclusion of USD 15,000,000 in 2026 is taxed in the first estate at 40 percent, and the unlimited gift tax marital deduction is replaced by an annual exclusion of USD 194,000 in 2026 (section 2523(i); Rev. Proc. 2025-32). The denial applies whether the spouse lives in the United States or abroad and whether the decedent was a citizen, a domiciliary or a nonresident. Joint property is treated the same way: property held jointly with a spouse who is not a citizen is included in the first estate in full, except to the extent the estate proves that the survivor paid for it (section 2040(a)); the rule that counts only half for spouses does not apply (section 2056(d)(1)(B)). The deceased spouse’s unused exclusion passes to a surviving spouse who lives in the United States, but not to a nonresident who is not a citizen, except as a treaty allows (Treas. Reg. § 20.2010-3(e)).
The Code restores the deduction in two ways. Property passing to a qualified domestic trust is deductible: at least one trustee must be a U.S. citizen or a U.S. corporation, no principal may be distributed unless that trustee may withhold the tax, the executor must elect the treatment on the estate tax return, and where the trust exceeds USD 2,000,000 a U.S. bank must serve as trustee or a bond or letter of credit must be given (section 2056A(a); Treas. Reg. § 20.2056A-2(d)). The deferred estate tax is then paid on principal distributions during the survivor’s life, other than for hardship, and on what remains at the survivor’s death, computed as if it had been taxed in the first estate (section 2056A(b)); income distributions are free of it, and the trustee reports on Form 706-QDT. Alternatively the surviving spouse becomes a citizen before the return is filed, having lived in the United States since the death (section 2056(d)(4)). Property can also be assigned to a qualified domestic trust after the death, before the return is filed (section 2056(d)(2)(B)). The German convention offers a third route for German citizens: a marital deduction, on election, equal to the lesser of the property passing to the spouse and the applicable exclusion amount, without a trust (Article 10(6)).
| Transfer | Spouse is a U.S. citizen | Spouse is not a U.S. citizen |
|---|---|---|
| Bequest or trust for the spouse | Unlimited marital deduction | Deductible only through a qualified domestic trust, or if the spouse naturalizes before the return is filed |
| Lifetime gift to the spouse | Unlimited marital deduction | Annual exclusion of USD 194,000 (2026); the excess uses the donor’s exclusion |
| Joint property at the first death | One half included | Fully included, except the survivor’s proven contribution |
| Unused exclusion of the first spouse | Portable to the survivor | Portable to a survivor living in the United States; not to a nonresident, except under a treaty |
| Life insurance owned by the first spouse | Marital deduction if payable to the spouse | Payable to a qualified domestic trust, or owned by the survivor from the start |
| Retirement accounts | Rollover by the spouse | Rollover possible; for the deduction, plan payments that cannot be assigned must meet the conditions of Treas. Reg. § 20.2056A-4(c) |
What has to happen, in order
- Map the estate
What each spouse owns, how it is titled, who the beneficiaries of each account and policy are, and which law governs the marriage: separate property, community property or a foreign regime.
- Measure the exposure
The tax in the first estate without the deduction, under the Code and under any convention.
- Equalize during life
Annual gifts of USD 194,000, the use of the donor’s exclusion for larger gifts, and the record of each spouse’s contribution to joint property.
- Draft the qualified domestic trust
In the will or revocable trust: the U.S. trustee, the withholding clause, the bank trustee or security above USD 2,000,000, and the income and hardship provisions.
- Arrange the beneficiary designations
Life insurance and retirement accounts payable to the trust or arranged so that the deduction is preserved.
- Consider naturalization
Where the spouse qualifies, citizenship before the return is filed restores the full deduction; the timing is planned with the immigration adviser.
- Administer the trust after the first death
The election on Form 706, the classification of each distribution, and Form 706-QDT for principal distributions and at the survivor’s death.
How the firm helps
The firm’s attorneys design and administer the plan for couples in which a spouse is not a citizen, in the United States and across the border.
- The estate plan with the qualified domestic trust, or with the alternatives that fit the couple’s facts.
- The lifetime gifting program and the record of contributions to joint property.
- The coordination with a foreign marital property regime or marriage contract, and with the succession law at home.
- The estate tax return and the election after the first death, and the trustee’s compliance afterwards.
- The treaty position where the German convention or another convention applies.
What documents to prepare for the initial consultation
- Passports, green cards and the citizenship of each spouse
- The marriage certificate and any marriage contract or prenuptial agreement
- Existing wills, trusts, powers of attorney and beneficiary designations
- Statements of all accounts, showing how each is titled
- Deeds of real estate, with the record of who paid for it
- Life insurance policies and retirement account statements
- Documents on business interests of either spouse
- Gift tax returns filed in earlier years
- The countries where the couple has lived and intends to live
Copies are sufficient. The firm sets up a secure portal for the documents and reviews them before the consultation.
The German convention allows, on election by the executor and the waiver of the qualified domestic trust route, a marital deduction equal to the lesser of the property passing to the spouse and the applicable exclusion amount, where the decedent and the spouse were domiciled in Germany or the United States and, if both lived in the United States, one was a German citizen (Article 10(6)); it also grants a pro rata unified credit to a decedent domiciled in Germany (Article 10(5)). The Canadian convention contains a marital credit. The other conventions leave the Code’s rules in place.
Describe the couple’s situation in a few lines
The citizenship and residence of each spouse, the main assets and how they are held are enough for the firm to say what the plan needs and how it would proceed.
