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money limit of foreign spouse inheritance
Old 06-04-2009, 07:06 AM   #1
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money limit of foreign spouse inheritance

Off the other thread of mine, I got to wondering about a couple comments made about foreign spouse limits on inheritance if I die. Took a quick look and I think I saw where it was no problem below $2 million. If that is true, then it would only be a problem in my dreams. Even with savings etc and the house we have.....total of everything would be around $850,000-900,000. Anybody know something different?
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Old 06-04-2009, 08:22 AM   #2
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The unlimited spouse inheritance does not apply to non-citizen spouses, so US and state estate taxes are due. There is currently an exemption greater than the 900K you mention but estate taxes are under review and may change.

Likewise, if you establish a living trust, one of the trustees must be a US citizen.
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Old 06-04-2009, 08:53 AM   #3
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Or a US company can be trustee. The federalies want to be sure they get their taxes.

Anyone doing estate planning that has a foreign spouse would be well-served to consult with an estate attorney who has experience in this area. It is more than a bit tricky from the limited coverage we got in the CFP program.
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Old 06-04-2009, 09:04 AM   #4
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So there is not a limit on how much the spouse can inherite... just that you have to pay estate taxes on the amount....
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Old 06-04-2009, 09:11 AM   #5
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Oh man, my head hurts.....guess I will send a note to my finance guy and see if he can come up with something. He is the one that told me that my wife would be eligible for the SS spouse money if she is in the country with me for at least 5 years.....which is why we are moving to the US instead of staying here. I need a beer.........
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Old 06-04-2009, 09:29 AM   #6
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This is indeed a very complex question, and finding any definitive answer seems to be almost impossible.

Take a look at this, one of the most comprehensible article I found to date (and still as clear as mud if you ask me):

International Estate Planning: Transfers to Non-Citizen Spouses Require Special Planning
They seem to suggest that the exemption could be as low as $100K

The other question I had was this:

Are proceeds from a life insurance policy (premiums paid by insured) subjected to US estate and gift laws? Are the proceeds considered part of one's estate at death, or do they remain separate and passed on to the beneficiary (any beneficiary) tax free?
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Old 06-04-2009, 10:18 AM   #7
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Oh great.....going to need 4 beers now!! Cornwall gets to looking better all the time........
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Old 06-04-2009, 10:22 AM   #8
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Originally Posted by FIREdreamer View Post

The other question I had was this:

Are proceeds from a life insurance policy (premiums paid by insured) subjected to US estate and gift laws? Are the proceeds considered part of one's estate at death, or do they remain separate and passed on to the beneficiary (any beneficiary) tax free?
That one is easy.... if you owned the life insurance it is included in your estate... it does not matter who the beneficiary of the policy is, just that you owned it... the money goes to them income tax free...
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Old 06-04-2009, 10:23 AM   #9
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Oh great.....going to need 4 beers now!! Cornwall gets to looking better all the time........
They serve a nice pint at the Queen's Head in Kettlesing.
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Old 06-04-2009, 10:27 AM   #10
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That one is easy.... if you owned the life insurance it is included in your estate... it does not matter who the beneficiary of the policy is, just that you owned it... the money goes to them income tax free...
But they might still owe estate taxes on the money, correct?

By the way, here is a reminder of current gift and estate tax rates:
http://www.savewealth.com/planning/estate/taxes/
Lovely...

Also note, that if you are a not a US citizen you might have to pay gift and estate taxes on all assets owned jointly with your US citizen spouse, even on the half you supposedly own...
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Old 06-04-2009, 12:47 PM   #11
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Originally Posted by FIREdreamer View Post
But they might still owe estate taxes on the money, correct?

By the way, here is a reminder of current gift and estate tax rates:
Guide to Estate and Gift Taxes
Lovely...

Also note, that if you are a not a US citizen you might have to pay gift and estate taxes on all assets owned jointly with your US citizen spouse, even on the half you supposedly own...
Yes.... if you estate is big enough you will have to pay estate taxes on life insurance...
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Old 06-04-2009, 01:32 PM   #12
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PX4...met my wife there......post wedding meal there.....hmmm, about time I went out there, they do a good fish and chips.
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Old 06-09-2009, 12:06 PM   #13
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I did some digging on the subject and this is what I found: The law seems to be different depending on whether the non-US spouse is a permanent resident who wishes to remain in the US or a non-resident.

If the spouse is a non-resident, non-citizen, then the estate tax exemption is very low, around $60K to $100K depending where you look. So, the non-resident, non-citizen spouse would receive only the first $60K-$100K tax free then would have to pay estate taxes on the rest. The non-resident, non-citizen spouse would then be able to dispose of the remaining assets as he/she wishes, including permanently moving those assets abroad.

If the spouse is a non-citizen but a resident (and wish to remain a resident), then the non citizen spouse cannot use the unlimited marital deduction but the estate will only be taxed if its value exceeds the unified credit amount ($3.5M for 2009, unlimited for 2010, $1M for 2011 and thereafter). For large estates, there are ways for the non-citizen, resident spouse to use the unlimited marital deduction. It involves using a type of trusts called QDOTS: upon the death of the US-citizen spouse, his/her estate passes to the trust entirely free of estate taxes. The non-citizen, resident spouse can enjoy the income from the trust (estate tax free), but the principal cannot be disposed of without first paying the proper estate tax. When the non-citizen, resident dies, estate taxes are paid on the assets inside the QDOT and the remaining assets are passed onto designated beneficiaries.

I have read in several places that there are further complications if the non-citizen, resident spouse subsequently decides to move abroad permanently with his/her assets, hence effectively becoming a non-citizen, non-resident. I cannot find much detail about these complications, but my feeling is that estate tax might be levied on the difference between the $60K-$100K exemption for the non-citizen, non resident, and the unified credit amount.

Things to keep in mind: 1) When a US citizen is married to a non-citizen (resident or not), the gross estate of the US citizen includes all jointly owned properties in their entirety (unless the non-citizen spouse can show that he/she contributed significantly to the joint property). Therefore estate taxes might be owed on all jointly owned properties as if they were entirely owned by the US citizen spouse. One way around that is to avoid owning assets in joint tenancy. 2) State estate taxes might have very low estate tax exemption for all non-citizen beneficiaries, whether they are residents or not. I have read that Washington state for example only has a $60K exemption.
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Old 06-09-2009, 01:25 PM   #14
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Thanks FIREdreamer.....I even went to the Legal office on base today....no good there, but I didn't think there would be. Pretty well all of the bits and pieces that you have here I think I have seen in scattered articles. Ideally, my wife would be non-citizen but permanant resident. Although maybe I could talk her into doing the citizenship bit eventually since it does make things a little simpler. But I also know that if I get run over by a truck or something she would head back here to the UK in a heartbeat (and I wouldn't blame her). Maybe if it happened after a lot of years she would be settled and not want to move. We would definitely be under the $1 million mark...total assets including the house in Spokane in a couple of years would be maybe $850,000. We just need to decide which way to go in the next month or two. We can head back to the US in 2 more school years (I would be 54) and probably have the house and over $600k in TSP/savings etc....figure about $40-45k a year to live on. Just can't see moving down south here in England in 2 years....probably would take another year or two on top of that...or just go in 2 years and REALLY suck it up. We are both drooling over the floor to quit working....

Thanks for the research.....it really is a confusing hard to find topic.... the immigration thing is just as bad and is another great headache.
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Old 06-09-2009, 02:15 PM   #15
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Here's the solution we used. It eliminates all the complications:

Have the spouse become a citizen.
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Old 06-09-2009, 02:19 PM   #16
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F4, I think you might be dreaming a bit if you think that if something happened to you your wife would stay in the US. Think about it logically, I am assuming she is a similar age to yourself, she is moving to the US in her late 50s, all her friends and family are back in the UK, so if something was to happen to you in 20 years or so she may stay, but if it happened in 5 do you really think she would have the support network to make it worth her while?

The other issue you do have to consider, you have to be sure that you make the 5 year mark with her resident in the US or she will never qualify for the spouse's SS. What if you were to move back here in 2 years and you should die 2 years after that? I know this is the half empty option, but in that scenario she gets no social security and has to pay estate taxes. Regardless of whether you can put it in a trust, on her death do you really want to subject your estate to taxes? Does the social security payout outweigh what it is going to cost you for medical in the US?

Personally if I was you, I would be consulting an expert on estate taxes as they relate to non-US citizens. Give them the numbers and let them work out what your break even point would be. After that I would worry about the immigration status.
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Old 06-09-2009, 03:12 PM   #17
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DangerMouse....you read my post wrong. I said that if I were to die anytime soon (meaning a few years) on moving to the US she would head back here to the UK like a shot. As also stated in the message...I would be 54 if we go in 2 years (she is a couple years younger)...so the 5 year residency for SS would easily be met (as planned). I do think the citizenship is the easiest way to solve the problem....and at that point everything kind of smooths out (if I can get her into the US...that is another mess). My wife would likely be willing to go ahead and do the citizenship (grumbling a lot on the way). Just a tough decision.....financially better to go to the US......I have family there, but nothing that is overly important. I have already been living overseas (UK, Germany, Okinawa) most of the time since 1980. She definitely would have some guilt about heading that way and leaving. Medical you just never know about. Hopeful restructuring underway in the future for Obama....but I don't pay that much for health insurance ($110 or so a month for myself). Just going NHS here would work and I could drop my US insurance, but getting anything non-desperate done here can take forever without going private.

FIREstarter mentioned some good points on the estate taxes topic. But... citizenship is likely going to HAVE to happen if we head that way....just less headaches.
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Old 06-09-2009, 05:14 PM   #18
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Yes, but your wife will have to be living with you in the US for 3 years before she is even eligible for citizenship? Also the 5 years as a spouse to qualify for SS, that is living in the US as the spouse of a US citizen. The time you have already been married and resident in the UK does not count. So if I am correct, it will be 5 years or so before your wife is even eligible for citizenship.

Applying for U.S. Citizenship and Naturalization

However, it is definitely a no-brainer. If you guys are coming to the US, as soon as she is eligible she should do citizenship.

Regardless of all this I would be seeing an expert in the area of estate planning to see if you can start positioning your assets for maximum protection.
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Old 06-10-2009, 12:36 AM   #19
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Ahhhh, great....yet more questions for me to track down. There must also be a way around the time in US factor since I work with several other teachers (and my principal) who are married to UK ladies and have the dual citizenship and like me have spent most of their adult life living out of the US. It still unfortunately comes down to a simple question that we are stressing out about....Which country is it going to be....we are pretty 50-50 at the moment. Life in the US would be easier as long as there are no health issues. Life in the UK is more expensive, but other things offset that (her family is more important to her than mine is). Damn life...keeps throwing curveballs at you.........but as they say, the alternative is worse.
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Old 06-10-2009, 07:21 AM   #20
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Oh great.....going to need 4 beers now!! Cornwall gets to looking better all the time........
And, of course, make sure you do your serious beer drinking before returning to the USA. Although it sounds like you've got that one under control.

Coming back through immigration recently, the inspector pondered my spouse's 15-year permanent residency and politely puzzled as to why she didn't become a citizen. Remembering that the first rule of american immigrations and customs is never, ever say anything odd, negative or controversial to them, I was stopped cold, finally sputtering something about "not until she sells her beloved family house in xxx". What I really wanted to say was "I'd rather become a xxx citizen".

But it's like roach motels-- you can check in, but you can't check out. In addition to the various political and social considerations, and the stuff above on foreign spouse estate and gift taxes, the USA apparently levys an exit tax on people renouncing citizenship or even permanent residency-- a mark-to-market tax on *unrealized* gains on value of all worldwide assets the day before you renounce, replacing the previous "shadow period" where you'd be liable for taxes 10 years *after* no longer being a citizen. There are thresholds that will probably protect you as you describe your situation above, but walk into it with your eyes open.

Google "exit tax" and take your pick.
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